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Wall Street Journal3 Value Stocks in Hot Water
Value stocks typically trade at discounts to the broader market, offering patient investors the opportunity to buy businesses when they’re out of favor. The key risk, however, is that these stocks are usually cheap for a reason – five cents for a piece of fruit may seem like a great deal until you find out it’s rotten.
Separating the winners from the value traps is a tough challenge, and that’s where StockStory comes in. Our job is to find you high-quality companies that will stand the test of time. That said, here are three value stocks with poor fundamentals and some alternatives you should consider instead.
Amkor (AMKR)
Forward P/E Ratio: 10x
Operating through a largely Asian facility footprint, Amkor Technologies (NASDAQ:AMKR) provides outsourced packaging and testing for semiconductors.
Why Do We Pass on AMKR?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 5.6% annually over the last two years
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 14.6%
Amkor is trading at $20.17 per share, or 10x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than AMKR.
American Airlines (AAL)
Forward P/E Ratio: 5.8x
One of the ‘Big Four’ airlines in the US, American Airlines (NASDAQ:AAL) is a major global air carrier that serves both business and leisure travelers through its domestic and international flights.
Why Should You Sell AAL?
- Performance surrounding its revenue passenger miles has lagged its peers
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 17.5% annually while its revenue grew
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $13.74 per share, American Airlines trades at 5.8x forward price-to-earnings. If you’re considering AAL for your portfolio, see our FREE research report to learn more.
CVS Health (CVS)
Forward P/E Ratio: 11x
Founded in 1963 as a chain of health and beauty stores, CVS Health (NYSE:CVS) is best known for its retail pharmacies today, but the company also has a health insurance arm (Aetna), and a pharmacy benefits management service as well.
Why Does CVS Give Us Pause?
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 2.7 percentage points
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 5.2% annually
- Free cash flow margin dropped by 3.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up
CVS Health’s stock price of $64.60 implies a valuation ratio of 11x forward price-to-earnings. Read our free research report to see why you should think twice about including CVS in your portfolio.
Stocks We Like More
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Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.