A few quick updates before we jump in:
A dashboard to track our portfolio, along with continuously updated buy/sell/hold ratings for stocks in our watchlist, was one of the most requested features. You can access it from our homepage starting today!
From the survey we conducted last week, the other feedback was to cover companies that are not very popular and often overlooked by investors. Here are three companies in a drawdown you might have overlooked.
As always, the following are potential bargains that warrant a closer look, not blind investment. Read till the end to vote on which company you want us to do a deep dive on!
1. Porsche ($P911)
While you might know Porsche as the iconic German sports car maker, what you might have missed is that the stock has been struggling since its IPO back in 2022. Porsche’s listing was the second-largest in the German market, and it was briefly valued more than its parent company, Volkswagen, and even the luxury carmaker Ferrari.
Side note: DRPRY is the ADR shares for Porsche. The company is originally listed on the Frankfurt Stock Exchange under the ticker of P911 — how cool is that!
Drawdown
But Porsche’s luck changed soon after the IPO, and the company is in a deep drawdown, having lost 58% of its market capitalization in the last 2 years. So what went wrong?
The EV dream — In 2020, Porsche started the transition to EV, and the CEO announced that by 2025, 50% of the company's sales would be electric (and 80% by 2030!). The idea seemed to work well with the company selling 20,000 Taycans in 2020 and more than 40,000 in 2023. But then the sales cratered by 50% in 2024. The car was plagued by issues because they went overboard with features and gimmicks, and since it was a new model, most service centers were not equipped to repair them. The final nail in the coffin was the brutal depreciation. At the higher end, most Porsches appreciate due to their exclusivity (the 911 GT3 RS, for example). But a $200K Taycan was only worth $50K to 70K after just 3 years. The cars were impossible to resell.
Weakening Chinese market — China was Porsche’s number 1 market in 2021, contributing 1/3rd of its overall sales. Over the past 2 years, the Chinese luxury car market has cooled significantly for Porsche due to a combination of factors like economic slowdown, weaker consumer spending on luxury goods, and fierce competition from Chinese EV makers (Nio, XPeng, BYD, etc.)
Rebound Catalysts?
YCombinator’s motto is “build something people want”. Porsche spent billions trying to convince sports car enthusiasts that electric cars were better. They went on to make arguably one of the most advanced EV sports cars. But they never stopped to think if that’s what their customers wanted. Even Ferrari, which dipped its toes into EVs, soon found out that none of its customers wanted an EV sports car.
Ironically, all through this, their 911 sales continued to rise. All it takes for Porsche to rebound is for them to refocus on their IC engine cars. As one YouTube comment eloquently put
Here’s your problem right here: “A commanding lead in the Luxury EV market.”
You are a sports car company. You are THE sports car company. It’s like Glock trying to get a commanding lead in the shotgun market or Fender trying to get a commanding lead in the grand piano market.
There’s a lot to be said for sticking to what you know and doing it well.
We do have some positive signs that the company might be on a turnaround path:
New leadership: Effective January 2026, Porsche will have a new CEO, Michael Leiters (former Ferrari and McLaren executive), taking the helm. This ends the dual-role issue that has plagued Porsche for a long time (Porsche's CEO was also Volkswagen's CEO).
Conservative Guidance: The company has guided for a 0-2% operating margin for 2025. If they can execute slightly better, it would beat the low expectations.
Delaying EV models: Porsche has recently stated that it would delay some EV models in favor of hybrids and combustion engine cars.
Welcome to Rebound Capital. If you are new here, we conduct deep research into beaten-down stocks and study companies that made a successful comeback. Subscribe for free and join 7,100 other investors to make sure you don’t miss our next briefing:
2. Morningstar ($MORN)
While their consumer-facing side is popular, most of Morningstar’s revenue comes from their premium data subscriptions that they sell to other financial institutions. Thousands of companies subscribe to Morningstar Direct (~$15K per year) and PitchBook (~$20K per year).
Drawdown
The company is in a deep drawdown, having lost 35% of its value this year.
It’s unusual for data companies to drop this fast, as their subscriptions are sticky and revenues are stable (since it’s coming from other big financial companies). So what went wrong?
Morningstar reported weaker-than-expected earnings early this year. For Q4’24 report, even though the revenue grew pretty well (9.7%), operating expenses grew faster (10%) due to higher compensation costs. This margin squeeze caught investors by surprise, and the stock dropped sharply. Even though Q1’25 results showed improved margins, the revenue growth was much slower (7.2%).
The overall industry is becoming more cautious about spending on data. Macroeconomic worries (tariffs, cooling labour market, etc.) are forcing financial services firms to cut down on discretionary spending. Even peer companies like FactSet are down 40% YTD. Slowing deal activity due to high-interest rates was also a headwind for Morningstar’s PitchBook segment.
Rebound Catalysts?
There is no single catalyst that can drive the stock's rebound. Overall, the company is very high quality, with PitchBook and Morningstar Direct generating recurring, high-margin subscription revenue with strong client retention. The company has continued to grow in the low two digits and has recently acquired CRSP for $375M, thereby gaining coverage in the public market as well.
Management has also tightened expenses, boosting operating margins to ~23%, while maintaining over $400M in annual free cash flow and increasing dividends for a 16th straight year.
Overall, we need some macro tailwinds, such as a Fed rate cut, to unlock deal activity and re-rate the stock and industry.
P.S. — This stock was highlighted by one of our readers. Thanks, .
3. Texas Pacific Land Corp ($TPL)
This is a super interesting company with one of the simplest business models for a multi-billion-dollar corporation. They own 880,000 acres of land in West Texas. They sublet this land to oil and gas operators, for which they get royalties, and they also sell freshwater from their land. To put the size in context, they sold $150M worth of fresh water last year.
They generate $700M in revenue with 100 employees and incredible margins (Operating margin of 79% and net profit margin of 64%). This perpetual tollbooth model meant the company has generated a 100x return over the last 15 years. (That’s 4x return of Apple!)
Drawdown
But the company has lost almost half its value in the last 1 year.
So what went wrong?
Post boom correction: TPL’s stock had 3'Xed in 2024 due to surging oil prices and the company’s inclusion into the S&P 500 index. The valuations were stretched, with P/E rising to 66. With the Crude Oil falling ~20% in 2025, the stock got re-rated to a more palatable valuation (P/E of 46). TPL’s growth (at least in the short term) is closely tied to commodity cycles. One investment management company had trimmed its position in late 2024, citing that S&P inclusion optimism had “pulled forward many years of good news”.
Rebound Catalysts?
Oil & Gas price recovery — TPL’s revenues are closely tied to the amount of drilling that occurs on their land. Rising oil prices would encourage more operator activity, which in turn increases royalty revenue for TPL.
Data centers & energy projects — With big tech firms expected to spend over $200 billion on AI and cloud infrastructure, TPL might become a beneficiary. TPL has the physical footprint needed for large-scale data centers, access to fresh water to cool them, and access to cheap natural gas to power them.
We would love to hear what you think.