When looking for shares to buy for their Stocks and Shares ISAs, many investors are understandably attracted to those with all the momentum. However, investing in high-quality stocks that are going through a rough spell is also a proven strategy for creating wealth.
Here are a pair that have sold off aggressively recently. From their current levels, I think both could outperform the market over the next few years.
Novo Nordisk at $81
Novo Nordisk (NYSE: NVO) stock suffered its worst single-day drop ever last month, tanking by more than 20%. It’s now fallen 45% since June, and I reckon investors should consider taking advantage of this massive dip.
The pharmaceutical company’s a dominant player in diabetes care, commanding roughly 33% of the global market. In recent years however, it’s been its GLP-1 drugs, Ozempic and Wegovy, that have supercharged both sales and its share price.
So why did the stock bomb recently? Well, it was the age-old bane of pharma firms, namely disappointing late-stage clinical trial results.
In this case, the culprit was CagriSema, the company’s potential next-generation weight-loss treatment. Novo had set a target for patients to lose 25% of their body weight on average over 68 weeks. The end result was 22.7%, triggering the stock’s huge sell-off.
But that result was marginally better than rival Eli Lilly‘s Zepbound accomplished in a similar trial (22.5%). And around 40% of patients did in fact reach a weight loss of 25% or more. With a bit more tinkering, Novo could still reach the 25% target.
Of course, the risk here is that a rival comes up with an even better treatment. This could happen as there are dozens of firms hoping to break into this lucrative high-growth space.
Zooming out though, I think the CagriSema results show how difficult it is to come up with something much more effective than the current crop of GLP-1 drugs. And Novo still boasts a 55% share of the global market, which is tipped to reach $100bn+ by 2030, up from $24bn in 2023.
After its recent plunge, the stock is trading at a discounted forward price-to-earnings (P/E) multiple of 21. I think that’s attractive and took the opportunity to add to my holding earlier this month.
Greggs at £21
The second stock worthy of consideration is Greggs (LSE: GRG). Shares of the well-known bakery chain have plunged 23% in January alone!
This followed the firm’s disappointing fourth quarter. Total sales growth was 7.7% year on year, while like-for-like growth came in at just 2.5%, instead of the forecast 5.4%.
Greggs blamed lower footfall on high streets and weak consumer confidence. These issues haven’t gone away, so this year could also be challenging.
Plus, in response to higher costs following the Budget, it has increased the price of a sausage roll to £1.30. Loyal punters aren’t happy with this second rise inside a year, according to the tabloids.
Following this dip though, I like the long-term risk/reward setup. Greggs still intends to increase the shop count to 3,000+, while also going after the massive evening food-to-go market.
The stock’s now trading on a forward P/E ratio of 15, noticeably lower than its 10-year average of 18. And there’s a forward dividend yield of 3.4%.
This post was originally published on Motley Fool
