Dumpster diving can be fun when looking for beaten-down stocks to buy. Many times deeply discounted companies are simply mispriced by the market. Too much importance is placed on a one-time event or a situation that is short-term in nature. It offers investors the classic situation of buying low and selling high. Stocks may be one of the few things people hate buying when they go on sale. With these stocks being at a 52-week low, you’re not going to find a much bigger sale.
Of course, there are many instances where a stock is crushed for very good reasons. You can’t tell just by looking at the stock price. You need to dive into the company and see if its business model is broken. In that case, you want to pass on by because you will only be throwing good money after bad.
What follows are three stocks that are down on their luck. Let’s see if they’re stocks to buy at a 52-week low or just a value trap waiting to burn through more cash.
Pfizer (PFE)
Pharmaceutical giant Pfizer (NYSE:PFE) is trading at levels it hasn’t seen in over a decade. It’s lost 55% of its value from the all-time high it hit two years ago when its Covid therapies Comirnaty and Paxlovid ruled the pandemic-stricken world. Today, not even two new acquisitions can give its stock a booster shot.
Pfizer just closed on its $43 billion takeover of Seagen, a biotech focused on cancer treatments. Not even including its sales in the revenue guidance the pharma just provided could mask the collapse Pfizer is suffering.
Pfizer said 2024 revenues would be in the range of $58.5 billion to $61.5 billion, essentially flat from this year, but well below the $62.3 billion Wall Street was looking for. What makes it even worse is the guidance includes a $3.1 billion contribution from Seagen. It means the pharma’s own business is tanking because it was all tied up in Covid treatments. That demand has now evaporated.
The drug company made $52 billion in Covid sales in 2022 but just $12.7 billion in this year. It expects to pull in only $8 billion from them next year.
Yet Pfizer’s valuation makes it an interesting stock. The pharma goes for just 10 times next year’s earnings. Because the drug company still has numerous other billion-dollar therapies and could readily acquire more, it’s why investors shouldn’t count Pfizer out. With $44 billion in cash and short-term investments, the pharma could buy a blockbuster anti-obesity drug, for example, and be back in the game. Pfizer is definitely a beaten-down stock you won’t mind owning for the next decade.
Hershey (HSY)
Confectioner Hershey (NYSE:HSY) also finds itself a chocolate mess. The stock is down 20% year-to-date and lost a third of its value from its 52-week high. While sales grew 11% last quarter, price hikes were primarily the reason behind most of Hershey’s gains. Inflation is taking a toll but the continued decline in consumer demand for candy and snack foods could be a bigger problem.
Data from the International Food Information Council’s 2023 Food and Health Survey shows 72% of consumers are trying to limit or avoid sugars. Mordor Intelligence says the chocolate industry is only expected to grow at a compounded rate below 3% annually. The advent of weight-loss-in-a-pill drugs could also impact the sales of sweets and other snack foods.
CEO Michelle Buck, however, doesn’t see them as threats as consumers have an “emotional” attachment to Hershey products. It’s also true that chocolate is an affordable luxury, one consumers don’t give up lightly.
Investors shouldn’t worry too much about these trends. Hershey’s pricing power shows it can preserve profit margins in the face of lower volumes. Moreover, most of Hershey’s sales center around holidays, like Halloween and Christmas. That’s not going to change. As for the weight-loss drugs, they are very expensive and out of the price range of most people.
The only problem is the stock isn’t cheap. On a price-to-earnings basis it’s as cheap as it’s been in the past five years. Comparing it to sales or free cash flow, however, and it’s about average. With long-term earnings growth rates expected to be in the single-digit range, Hershey’s stock is not trading at enough of a discount to back up the truck. A few Kiss-sized purchases might not be a bad strategy, though.
AMC Entertainment (AMC)
Meme stock poster child AMC Entertainment (NYSE:AMC) is down 91% from its most recent highs and 99% below the stock trading frenzy days of early 2021. The movie theater operator is one of those stocks you want to do well but know won’t. Theater attendance was falling before the pandemic hit and the health crisis only served to change entertainment consumption for the worse.
In 2002, ticket sales reached a peak with the sale of 1.58 billion tickets. By 2019, the number of tickets sold had steadily fallen to 1.23 billion, but year-to-date sales are only 868 million tickets. The total box office of $9.1 billion is approaching pre-pandemic levels. Unfortunately, that’s only because average ticket prices stand at an all-time high of $10.53 a stub. That’s 15% above 2019 and 81% more than in 2002.
Beyond the secular decline of the industry, AMC’s business choices are questionable. Whether it’s a stake in a non-functioning gold mine, its dalliance with non-fungible tokens (NFTs), or the bait-and-switch of its preferred stock conversion, AMC’s actions have severely hurt shareholders. Its reverse stock split this year did nothing to help either.
Certainly, AMC benefited this year from huge movie hits like Barbie and Oppenheimer, as well as Taylor Swift’s concert tour. Yet with another cash raise coming investors will see further value destruction in the form of additional share dilution. It’s a stock down in the gutter for good reason. Investors should not trust the theater company with their money.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.