3 Struggling Stocks That Could Make for Great Contrarian Buys

Buying stocks that are down and facing challenges can be difficult simply because you don't know if or when a turnaround may take place. It may require a great deal of patience to invest in a stock that many investors are betting against or that the market is expecting will struggle; that uncertainty inevitably gets priced into the stock's valuation.

But buying these types of contrarian stocks can also result in more significant gains later on, if the businesses are able to prove the market wrong. There are three stocks that I believe may be good ones to buy today, despite their current headwinds: Duolingo (NASDAQ: DUOL), Pfizer (NYSE: PFE), and Robinhood Markets (NASDAQ: HOOD).

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Duolingo

Shares of Duolingo have taken a beating over the past 12 months, losing close to 80% of their value. Heightened fears about artificial intelligence (AI) stealing business and the company focusing on user growth over monetization are key reasons why the stock has plummeted as badly as it has.

But if you look at its financials, you'll see that the business is still doing well. Its growth rate has been slowing down. However, beyond that, the company isn't necessarily in dire shape. Over the trailing 12 months, it has generated $1.1 billion in sales, with net income totaling $422 million, for an impressive margin of 38%.

AI may be both a threat and an opportunity for Duolingo, as it can help create lessons faster and offer a more customizable learning experience. At 12 times earnings, it's a fairly cheap stock to own right now, and it's one that I think the market has been overly punitive on; it could have a lot of room to rise higher.

Pfizer

Pfizer's stock has been picking up steam over the past 12 months, rising by 16%. But it still has a long way to go in recovering from its freefall in recent years. Since 2022, its share price has crashed by about 56%. And based on analyst estimates, it's trading at just nine times its expected future earnings.

The healthcare stock remains heavily discounted due to the uncertainty around its future growth, with the company facing patent cliffs on multiple key drugs. That means its revenue could decline if it doesn't develop or acquire new products to make up for the shortfalls. The good news is that Pfizer has a massive pipeline of drugs. As of May 5, its pipeline stood at 96 potential drug candidates, as the company has been working feverishly (and acquiring companies) to create more opportunities to bolster its growth prospects.

There's some risk with the stock, as is evident with its modest valuation, but if it's able to get one or two promising drugs approved, that could drastically change the outlook for the business. There's, of course, no guarantee that things will turn out in Pfizer's favor, but investing in the stock could be a calculated risk worth taking.

Robinhood Markets

Shares of Robinhood are down nearly 30% this year, and a big part of that is due to a weak crypto market, with Bitcoin falling in value this year. Robinhood's trading app has seen fewer cryptocurrency transactions, and thus, that's impacted its growth rate. At 15% growth for the most recent quarter (which ended on March 31), it was a decent rate, but for a stock that's been trading at more than 40 times earnings, expectations will inevitably be high.

Robinhood has some terrific long-term growth opportunities in prediction markets, which can strengthen and diversify its already robust trading platform. Its popularity with young retail investors is another reason I believe the business may continue to grow and do well, as they can be among the most active traders, whether it's in crypto, stocks, or prediction markets.

Although the stock may still be a bit expensive, given the growth opportunities it may offer, I think a strong case can be made for buying Robinhood stock right now. It's down nearly 50% from its 52-week high of $153.86. Even if it doesn't get back to that level, the stock may still have room to generate excellent returns for investors from here on out.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Duolingo, and Pfizer. The Motley Fool has a disclosure policy.