Thanks to a nearly 30% stock market rally in 2019, last year was a hard one for investors looking for obvious values. The few declines that did occur during the year were minor, and most stocks joined the broader market in rallying into 2020.
Yet deals are always available, as some stocks and industries fall out of favor and Wall Street shifts its focus elsewhere. The challenge is finding top businesses within this group. With that in mind, let's take a look at a few potentially attractive investments that trailed the market in late 2019 and limped into the New Year.
1. Ulta Beauty
Beauty products retailer Ulta Beauty (NASDAQ: ULTA) was trouncing the market until late August when shares dove to push its annual return to just 3% compared to the S&P's 29% spike. Investors weren't happy to learn that demand challenges threatened management's initial 2019 plans, both on the sales and profitability fronts.
However, the consumer stock's struggles appear rooted in wider industry challenges rather than competition. In fact, the company continues to win market share both in its stores and in the online sales channel. CEO Mary Dillon and her team in early December highlighted that success, along with Ulta's slim inventory position heading into the holiday season.
Investors will see how well that selling period went when Ulta announces its fourth-quarter report in March. Executives should also comment on the general strength of core industry categories like the makeup niche. A more positive tone would support a rebound rally for this stock, but shareholders might earn solid returns just by holding through what's likely to be a temporary growth slump.
Investors have turned more bearish on Twitter (NYSE: TWTR) stock in recent weeks, with shares declining 20% since early October. There are some good reasons for the skepticism, including slowing sales growth and technical issues related to its core advertising platform. This last problem also touches on data privacy, which makes it a troubling threat to the user experience.
But the social media company still has some formidable assets, including a user base that's growing at its fastest pace in over a year. Profitability challenges should subside as Twitter makes improvements to its back-end legacy systems over the next few quarters, too. Yet the big payoff to owning this controversial stock would come from innovations that the company makes to its microblogging platform. It's impossible to predict what those changes will look like, but investors can be sure that Twitter's engineers will do their best in 2020 to promote more engagement and a better experience, for advertisers and users, on its platform.
3. Darden Restaurants
Darden Restaurants (NYSE: DRI) was a rare underperformer in the restaurant industry last year, but there are good reasons to remain optimistic about its business. Sure, sales growth is slowing, and that issue might point to bigger challenges in the full-service restaurant niche. Yet Darden's last earnings report showed off the power of its dining portfolio. Longhorn Steakhouse enjoyed a robust 3% customer traffic boost that more than made up for the 1% drop at Olive Garden.
Investors aren't likely to see much faster growth in 2020 than the 2% boost it logged in fiscal 2019. But the chain's top line still looks solid and will be bolstered by an additional 44 restaurant launches over the next 12 months. Combine that promise with the chain's healthy finances and a robust dividend, and you might have a recipe for tasty returns from here.
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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Twitter. The Motley Fool recommends Ulta Beauty. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.