As 2024 nears the end, tax loss selling is performed for tax-loss harvesting by institutional and individual investors. This is the process of selling losing positions to take the capital loss to offset capital gains in other stocks in the portfolio. This accentuates the selling pressure for underperforming stocks. Investors usually wait 30 days to avoid the wash rule and buy back the shares. This results in the same stocks seeing inflows in January, propping up their prices. Many traders will jump into losing stocks in December for the potential bounce in January. Here are three underperforming stocks that may see a rebound in January as investors buy them back.
Unity Software: The Video Development Game Engine That Shot Itself
Unity Software Inc. (NYSE: U) owns the two dominant video game development engines in the computer and technology sector. Unity is a powerful game engine that handles graphics rendering in video games. They translate textures, 3D and 2D models, environments, and lighting into realistic images on-screen. Game engines simulate physics to create stylistic and realistic movements and interactions inside the game. Unity is known for its ease of use, cross-platform capabilities, and flexibility. It's popular with independent video game developers, mobile game developers, and virtual reality (VR) and augmented reality (AR) projects.
Shooting Itself in the Foot With Runtime Fees
On Jan. 1, 2024, Unity implemented a highly unpopular "runtime fee" pricing model that charged game developers based on game installs. The policy was met with unprecedented backlash, causing revenues to plummet and ultimately leading to the resignation of its CEO, John Riccitiello. By the time Unity repealed its failed model, damage had already been done to its stock and reputation. On Sept. 12, 2024, the newly installed Unity CEO Matt Bromberg apologized and modified its subscription pricing and annual revenue thresholds, reverting to its more traditional cycle.
Shadows of a Turnaround
Unity Software reported a Q3 2024 EPS loss of 31 cents, beating consensus estimates by 8 cents. Revenue fell 18% YoY to $446.52 million, firmly beating $427.34 million consensus estimates. Its Create Solutions revenue rose 5% YoY to $132 million. This segment generates revenue from its Unity Pro and Enterprise subscriptions, licensing, Unity Asset store, cloud services, and professional services. Unity Grow Solutions segment revenues fell 5% YoY to $298 million. This segment focuses on monetization, analytics, and advertising revenues.
Unity shares surged 26.63% in one month but are still trading down 32.21% as of Dec. 6, 2024.
Walgreens Boots Alliance: Emergency Restructuring to Avoid a Rite-Aid Outcome
Global retail pharmacy and drugstore operator Walgreens Boots Alliance Inc. (NASDAQ: WBA) shares have plummeted to levels not seen in 28 years. Its aggressive merger and acquisition (M&A) and investment activity backfired hard when macroeconomic headwinds intensified and crushed front-store sales. The once-thriving giant has implemented emergency restructuring plans led by CEO Tim Wentworth. The company identified 1,200 stores, or 14% of its total stores, to shudder in the next three years, including 500 in 2025. This will be immediately accretive to earnings.
FQ4 Indicates the Turnaround Is Materializing
Walgreens reported fiscal Q4 2024 EPS of 39 cents, beating consensus estimates by 4 cents. Revenues grew 6% YoY to $37.5 billion, firmly beating consensus estimates by $2.25 billion. Its United States Retail Pharmacy segment experienced 6.5% YoY growth, generating $29.5 billion. International saw 3.2% YoY growth to $6 billion. Its United States Healthcare segment saw a 7.1% jump in revenue to $2.1 billion, as its VillageMD primary care business sales rose 7.2% YoY, and Shields saw 27.8% YoY growth. The company cut costs by $1 billion, reduced CapEx by $700 million and realized $600 million in benefits from working capital initiatives.
Walgreens Provides Bullish Fiscal 2025 Guidance
Walgreens issued upside guidance for fiscal 2025 EPS of $1.40 to $1.80 versus $1.70 consensus estimates. Fiscal full-year revenue is expected between $147 to $151 billion versus $147.74 billion consensus estimates.
Walgreens shares are trading down 67.22% as of Dec. 6, 2024.
UiPath: Elongated Sales Cycles and Ushering in AI Agents
UiPath Inc. (NYSE: PATH) is a leading robotic process automation (RPA) software company. They provide AI-powered software robots, "bots," to automate redundant and repetitive manual tasks. There have been high hopes that UiPath would be a major benefactor of the AI boom, but it hasn't come to fruition so far. The company has stated that macroeconomic weakness is causing clients to scrutinize deals, resulting in an elongated sales cycle.
UiPath Advances With AI-Driven Process Automation
UiPath knows a lot about mining, improving, and automating processes. The next logical step would be developing AI agents to perform the mining autonomously, improving and automating processes and workflows.
The company has received positive feedback on its new Agenic Automation & Agent Builder. Its December preview has already garnered 1,000 customer registrations, some customers calling it a potential paradigm shifter. Rather than telling its bot what to do, a human worker can give an AI agent a task prompt like "Please compile a detailed report that includes detailed analysis, recommended actions and the rationale for the actions." The agent would be capable of autonomously completing it. This can be a meaningful growth driver as they can upsell the product to its base of over 10,800 clients and a community of more than three million members.
Growth Is There, Just Not Accelerating
UiPath reported fiscal third-quarter 2025 EPS of 11 cents, beating consensus estimates by 4 cents. Revenue rose 8.8% YoY to $354.65 million, beating $347.64 million consensus estimates. ARR rose 17% YoY to $1.607 billion after adding $56 million of net new ARR.
UiPath issued in-line guidance for fiscal Q4 2025 revenue between $422 million and $427 million versus $423.85 million, with ARR ranging between $1.669 billion and $1.674 billion.
UiPath CEO Daniel Dines commented, “Our customers’ response to the agentic automation vision and roadmap that we announced at FORWARD has been energizing and reinforces our leading position in the AI-powered automation market.”
Dines emphasized, “We have conviction that UiPath provides a differentiated approach to agentic automation that will expand our market opportunity by enabling customers to automate more complex and variable workflows to deliver enterprise-wide AI transformation.”
UiPath shares are trading down 40.8% as of Dec. 6, 2024.
