Out-of-favor stocks are shares of companies that have fallen out of investor favor. As a result, these stocks routinely trade at significantly lower prices. However, according to investment expert Paul Gabrail, the companies behind these stocks still often have the potential for recovery and long-term growth.
Gabrail specializes in teaching aspiring investors the mindset, emotions, and processes necessary to follow in his footsteps. The seasoned value investor is the name behind Everything Money, an investment education-focused podcast and YouTube channel that helps people build long-term wealth through stocks, real estate, and business development opportunities.
What follows is the Summit County, Ohio-based subject matter expert’s top three tips for investing in out-of-favor stocks in 2024 and beyond, starting with looking past general investor perception.
Look Past General Perception
Gabrail explains that it’s essential not to invest in something out of favor solely because of its out-of-favor status. Aspiring or existing investors looking to delve into out-of-favor stocks for the first time must also ensure that the perception is entirely or predominantly inaccurate or misjudged.
The Everything Money host says that the best world is one in which an out-of-favor stock is still growing in revenue and profit despite its status. According to Gabrail, this happens much more frequently than people think.
Dig Deeper Into ‘Dead’ Companies
Value investor Paul Gabrail’s first indication that an out-of-favor stock warrants a more in-depth look is when others refer to a company as ‘dead’ despite that company’s revenue and profit still increasing, even if only slightly. Again, it’s a case of looking past the general consensus.
Many investors fail to look more closely at the revenue and profits of companies already earmarked dead by the market and other investors. By doing some digging, it’s possible to discover value where others have failed to look closely enough.
Moreover, Gabrail reports that the digging needn’t be overly thorough, either – just enough to demonstrate that the figures are at odds with a company’s perceived dead status.
Always Question Yourself
When a stock is going down and out of favor, Gabrail says any interested investor must ask themselves, “Is this stock out of favor because the stock is going down, or is it out of favor because the fundamentals of the business are getting worse?”
Therefore, what’s arguably most important for investing in out-of-favor stocks is finding stocks that are down significantly but not by virtue of the business’s fundamentals. As long as a company still shows growth in its revenue, profits, and broader cash flow—and has good balance sheets—there’s some hope of success, despite what others may believe, the expert suggests.
