Investing in Fallen Angels Beats SpaceX

Everyone wants to find the next SpaceX.

But in the stock market, some of the biggest returns don’t come from chasing the hottest story. They come from buying stocks that have been thrown out by thousands of investors.

At Under the Radar Report, we call these stocks “fallen angels”.

There’s trauma. There’s pain. There’s disappointment. Investors have given up.

And that’s often where the opportunity begins.

Our philosophy has always been simple:

Buy Cheap and Be Patient.

This week, one of our Best Buys, Kogan ($KGN), surged around 20% after a positive business update. And while the move grabbed attention, the bigger lesson is what it says about investor psychology.

Kogan was once one of the market’s favourite growth stocks. During the pandemic boom in 2020, the stock traded above $20. Then sentiment collapsed. The business stumbled, investors lost confidence and the stock eventually traded below $3.

That’s the emotional cycle investors go through with fallen angels.

The excitement disappears. The market stops believing. Analysts move on to the next shiny story.

But if you’re willing to do the hard work and focus on the fundamentals instead of the emotion, you can often uncover genuine value.

In Kogan’s case, we like management’s strategy of competing aggressively on price while building higher-margin services such as mobile and insurance. We also see potential upside if the New Zealand business, Mighty Ape, continues to improve.

Importantly, the valuation still looks attractive.

And Kogan is not alone.

There are a number of ASX stocks sitting in various stages of investor pain right now.

Think former market darling CSL ($CSL).

Think Tuas ($TUA). Think Appen ($APX). Think software names like Catapult, Gentrack and WiseTech.

Some of these businesses are still in the middle of their reset. Sentiment remains weak. The headlines are negative. Investors are hurting.

But this is often where long-term opportunities are born.

One strategy we like is starting small. Put a little bit of money to work and see how the investment thesis develops. If the business improves and the market starts to recognise value, you can leverage into success. If things deteriorate, you can back off.

Nothing ventured, nothing gained.

The key is doing the fundamental analysis properly.

If you understand the balance sheet, earnings outlook, competitive position and valuation, you can temporarily ignore the market’s mood swings.

Over time, many growth darlings that lose their momentum evolve into something different. If the business is strong enough, they can eventually become reliable dividend payers trading on attractive valuations.

That’s why some of the best investments are often hiding among other people’s throwaways.

The market loves excitement. But patient investors often make their best returns buying quality businesses after the crowd has lost interest.

And sometimes, a fallen angel can become your most profitable trade ever.

Looking for More ASX Opportunities?

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