Lately, it has often been the case that when a stock takes a downturn it has proven to be a good buy opportunity. However, the strategy does not always hold true as things can always get worse before they get better.
Sometimes a company simply has limited growth prospects, fundamental flaws, or has simply fallen out of favor with the market. Here we highlight three downtrodden stocks whose performance could get significantly worse in the near term.
Is Xerox Holdings Stock a Good Value?
While the entire market tanked in March 2020, Xerox Holdings' (NYSE:XRX) really fell off a cliff. In less than a month the company went through the shredder losing more than 60% of its market value.
The pandemic-led drop is one thing, but there are bigger problems at Xerox. In an age of digital commerce, the company is a dinosaur. Its core printing and imaging business are experiencing a secular decline that has turned into a freefall since the onset of COVID-19. With many businesses still working remotely, demand for copiers, fax machines, and printed documents will likely continue to be low as the e-commerce trend accelerates.
Xerox stock has embarked on a slow journey higher since the dramatic downturn a year ago but continues to underperform the broader market. The valuation looks tempting from a historical earnings perspective given the P/E less than 6x, but Xerox has the makings of a bear trap.
With no end in sight to the company's structural challenges, Xerox's sales and earnings will likely continue to dwindle. In an increasingly paperless world, looks for the old school photo copier's stock performance to remain listless.
Is the Party over for National Beverage Stock?
National Beverage (NASDAQ:FIZZ) has an unusual price chart to say the least. The maker of LaCroix beverages got swept up in the frantic January short squeeze mayhem that included names like Gamestop and AMC Entertainment. Since the stock shot up on an emotion driven run, it has fizzled out along with trader enthusiasm. It went from almost $200 to less than $100 in a matter of days.
This was immediately followed by an oddly timed stock split—considering the stock had just experienced a natural two-for-one split based on its sharp decline. The split took the form of a stock dividend which was awarded to shareholders last month. Management referenced the "increased market participation by smaller and/or individual investors" as an impetus for the move which was intended to increase market liquidity and provide long-term growth opportunities for more investors. Although the dividend is a nice gesture, shareholders would've probably rather have seen the cash be reinvested in growth opportunities.
Putting this aside, National Beverage faces other challenges that warrants skepticism. The company quickly joined the ranks of stay-at-home beneficiaries as consumers stocked up on their favorite natural refreshment flavors. Yet as time has rolled on, National Beverage has looked more and more like a one-hit pandemic wonder. Sales comparisons will be tough going forward while increasing commodity costs and competition will put pressure on margins.
Shares of the sparkling water specialist have gone flat in recent days as the market pauses to re-evaluate where National Beverage goes from here. Although some pandemic demand will carry into 2021, the stock could sink lower amid the flood of water, juice, and energy products competing for shelf space.
How are Hexcel's Fundamentals?
Hexcel (NYSE:HXL), a manufacturer of lightweight materials for the commercial aerospace market, had a tough go of it in 2020 and there has been little sign of improvement since.
As a major supplier of carbon fiber composites for the Boeing 787 airliner (as well as the Airbus A350), Hexcel's struggles have coincided with the those of the airline industry and specifically Boeing.
The fallout from the Boeing 737 MAX disaster continues to be an overhang on performance. Regulatory hurdles and muted demand for new Boeing airliners has translated to little need for Hexcel's high-performance materials. The impact on growth in the Airbus business has been similar.
With air travel as we know it not expected to lift off anytime soon, the major aircraft manufacturers and by association Hexcel will continue to operate at depressed levels.
Despite its dismal 2020 performance, Hexcel's share price has started to take off a bit on hopes for better times ahead. But its hard to get excited about this stock given not only the headwinds in the commercial aerospace business, but an industrials segment that is also seeing sharply lower sales. Hexcel's position as a supplier of fiber blades for wind turbines has been uprooted by an industry shift to lower cost, commoditized alternatives.
Of the last 11 sell-side firms to issue an opinion on Hexcel, not one has been bullish. Five analysts have labeled it a 'sell' with price targets as low as $33.
The fundamental weaknesses are obvious with Hexcel. In addition to weakness across its end markets, it has a long-term debt balance that is roughly nine times its cash position. So, while Hexcel's stock price may show glimmers of hope, its likely to remain grounded if not head lower in the near-term.
Featured Article: Special Purpose Acquisition Company (SPAC) - What You Need to Know 7 Electric Vehicle (EV) Stocks That Have Real Juice
I’ll start with a disclaimer. You won’t see Tesla (NASDAQ:TSLA) or Nio (NYSE:NIO) on this list. And that’s not because I’m being contrarian. I just view Tesla and Nio as the known quantities in the electric vehicle sector. The goal of this presentation is to help you identify stocks that may be flying under your radar.
Many EV stocks went public in 2020 via a special purpose acquisition company (SPAC). There is both good and bad to that story. The good is that investors have many options for investing in the EV sector. Many of the companies that have entered the market are attempting to carve out a specific niche.
The potentially bad news is that these stocks are very speculative in nature. Whereas companies like Tesla and Nio have a proven (albeit recent) track record, there are things like revenue and orders that investors can analyze. With many of these newly public companies, investors are being asked to buy the story more than the stock and that is always risky.
However, in this special presentation, we’ve identified seven companies that look like they have a story that is compelling enough that investors should be rewarded in 2021.
View the "7 Electric Vehicle (EV) Stocks That Have Real Juice"
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