5 Stocks That Will Get Worse Before They Get Better

With the market remaining underwater for the year, you may be looking for bargain stocks to buy. Purchasing the shares of such names now, ahead of macroeconomic improvements, could provide investors with big gains when a bull market arises.

In particular, purchasing stocks that were hit hardest by the downturn can result in outsized returns. Take, for example, a stock that falls from a high of $100 to $25. For investors who buy it at $25, a partial rebounds to $50 per share would mean a 100% gain. If it climbs back to $75, they would triple their money.

These five stocks to buy can eventually deliver huge comebacks. But investors should tread carefully with them, as external and company-related factors may send them to new lows before they start meaningfully recovering.

Carnival (CCL)

Cruise stocks like Carnival (NYSE:CCL) have struggled since the pandemic. For a short time, CCL stock did partially rebound in 2021. However, the shares have since tumbled a great deal.

In fact, at today’s prices, CCL stock is barely above the lows that it hit when the world entered lockdown mode in March 2020. New virus variants have delayed the normalization of its revenue. Meanwhile, inflationary pressures have weighed on its bottom line, contributing to its heavy operating losses.

But Carnival can recover. Analysts’ average estimates for 2023 call for its revenue to finally get above its pre-pandemic levels.

Next year could also bring the company into the black, as analysts, on average, expect it to generate earnings per share of  80 cents. Still, before that happens, negative catalysts like dilutive share offerings could push this ship down further before it’s full steam ahead again for CCL stock.

Canopy Growth (CGC)

With Canopy Growth (NASDAQ:CGC) stock down 82% in the past year, pot investors have lost big on this name. Congress has yet to legalize marijuana at the federal level, preventing the company from entering  the U.S. market.

Meanwhile, due to the challenges in its home market, the company has failed to make much progress on the road to profitability. Even so, you may want to keep it on a watchlist of potential stocks to buy.

Even as congressional gridlock has delayed legalization of pot on the federal level,  more states have legalized it, making U.S. decriminalization more likely. But that’s still likely years away, meaning CGC stock could continue to languish.

Nevertheless, given the company’s large cash position, the stock’s risk may be minimal. So CGC is one of the better pot stocks to buy if Congress does get around to legalizing cannabis this decade.

Opendoor Technologies (OPEN)

With the housing boom cooling considerably, it’s no surprise that Opendoor Technologies (NASDAQ:OPEN) trades at a fraction of its all-time high. After all, this real estate “ibuyer” makes instant cash offers for homes, fixes them up, and puts them back up on sale.

Investors were excited about its business while housing prices were spiking. Now, however, with interest rates climbing and housing sales slowing,  the sentiment towards OPEN stock has done a 180-degree turn.

Fears are rising about how Opendoor will fare during a possible housing market downturn. That said, as a Barron’s commentator argued last month, OPEN stock appears cheap, compared to its long-term prospects.

Then again, the Federal Reserve appears likely to stick with its current hawkish policies. And as interest rates keep climbing, concerns about this company being left with a high number of unsold homes may spike, leading to another plunge by OPEN stock.

Upstart Holdings (UPST)

On paper, Upstart Holdings (NASDAQ:UPST) looks like a very good comeback stock to buy. Trading for less than a tenth of its all-time high, a partial rebound could mean big gains for those who buy UPST stock.  Upstart operates a cloud-based artificial intelligence (or AI) lending platform.

But there’s a good reason why this growth stock now trades for just 22 times analysts’  average 2023 earnings estimate. Specifically, its AI-based platform has yet to be tested during a recession.

A severe recession could damage the reputation of its platform as a worthy alternative to traditional loan underwriting methods. Worse, as InvestorPlace columnist Faizan Farooque argued in July, a downturn could cause the loans that it has placed on its balance sheet to generate big losses for Upstart. While UPST stock is a possible moonshot, it could just as easily be a “falling knife.”

Warner Bros. Discovery (WBD)

Warner Bros. Discovery (NASDAQ:WBD), formed when AT&T (NYSE:T) merged its media business with Discovery Inc., has been a dud of an investment since its debut in Spring 2022.

Investors keep losing confidence that this merger will create substantial value for shareholders. They’ve  become more skeptical that combining the two companies, which each brought a major streaming platform to the table, will enable Warner Bros. Discovery to compete against rivals like Disney (NYSE:DIS) and Netflix (NASDAQ:NFLX). Not to mention,  Warner Bros. Discovery may have trouble generating enough earnings to offset the declining profits of its cable television networks.

The company could still prove the market wrong, sending WBD stock substantially higher. Even so, if it continues to release dismal earnings reports as it cleans house, the shares may keep hitting new lows.

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.