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Buying beat down stocks is a time-honored way to earn significant returns in the stock market. However, the question is always the same: Which stocks are worth buying and which aren’t?
Here are five of the most prominent losing stocks of 2018, along with my thoughts on which ones to buy and which to avoid or short.
1. L Brands (NYSE: LB)
This female-focused retailer is leading the retail apocalypse. Shares have been crushed this year by plunging over 40% in the last four months. Already suffering from the overall retail malaise, L Brands exasperated the downside by issuing weak guidance at the end of 2017. Combined with analyst downgrades, the stock only collapsed under the pressure.
However, it appears that the worst is over for the $10 billion market cap company. Here’s why:
Best known via its consumer-facing brand stores Victoria’s Secret, PINK, Bath & Body Works, La Senza and Henri Bendel, the company operates 3,067 specialty stores in the United States, Canada, the United Kingdom and Greater China, and its brands are sold in more than 800 additional franchised locations worldwide.
Boasting nearly $13 billion in annual revenue, bullish signals are starting to emerge. In April, the company posted a 7% sales increase — a very positive step. I particularly like the Price Sales Ratio (P/S Ratio) of L Brands. It is currently reading around one compared to an S&P 500 average of over 3. The lower the reading of the P/S ratio, generally the more bullish the outlook.
Technically, the stock appears to be building a base in the $35.00 to $36.00 per share zone.
Buy Or Sell?
This beaten-down stock is a buy! My target price is $44.00, and initial stops are suggested at $30.73 per share.
2. Albemarle (NYSE: ALB)
This specialty chemical company, best known as a lithium producer, has seen its shares fall over 23% this year. This has been despite Albemarle consistently beating analyst estimates and posting solid results.
The reason for the price drop is simple. Chile plans to allow significant lithium production increases, leading to analysts downgrading price projections for the metal.
While there may be a temporary oversupply of lithium, the rapidly growing global demand for electric vehicles will likely outstrip supply overtime.
Assuming I am wrong about the lithium supply picture, other reasons exist to be bullish of the stock. 67% of Albemarle’s chemical sales are accounted for by other materials. The company boasts petroleum refining, fine chemical services, bromine specialties, and advanced materials operations. In other words, the company is well diversified across multiple markets.
Technically, shares have bounced from the lows and appear to be climbing higher. However, both the 50- and 200-day simple moving averages (SMAs)remains as resistance.
Buy Or Sell?
Albemarle is a buy right now in the $98.00 per share zone with a target price of $119.00 per share. Initial stops are suggested at $89.29 per share.
3. General Mills (NYSE: GIS)
The giant consumer staples company has seen its shares decimated 27% this year on the back of lackluster guidance and worries about the Blue Buffalo Pet Food acquisition.
Earnings are expected to fall 5-6% thanks to increased operational costs, rising food costs, and higher transportation rates.
While there are bullish signals arising from improved sales, the negatives outweighs the positives this time.
Technically, a double bottom — when a stock drops, rebounds, then drops to a similar level as the original drop, and rebounds again — has formed in the $44.00 per share zone. However, it appears to be failing as support right now.
I think General Mills has seen its glory days and is currently on the wrong path. I do not foresee the Blue Buffalo acquisition adding any significant value and expect the negative guidance to continue to weigh heavily on the share price.
Buy Or Sell?
General Mills is a sell right now in the $43.50 per share zone. My target price is $33.00 per share, and initial stops are suggested at $46.21 per share.
4. General Electric (NYSE: GE)
GE, a global digital industrial company, has seen its shares give back over 16% this year. However, a spate of bullish news has shares bouncing hard off their lows and trading above the 50-day SMA.
First, the company just beat its first-quarter earnings and revenue expectations. Secondly, General Electric has plans to sell off its $7 billion transportation division.
The latest news on the transportation division sale is that GE is said to be in talks with Wabtec to purchase its rail division. The sale will infuse the company with cash, fueling the changes needed to continue to compete for the rest of the century.
Buy Or Sell?
GE is a buy right now on a break out above $15.00 per share. My target price is $19.00 per share and initial stops are suggested at $12.47 per share.
5. Dentsply Sirona (Nasdaq: XRAY)
This $11 billion market cap dental supply company is off by over 25% this year despite being a leader in the field with $4 billion in annual revenue. The company has also quadrupled its dividend over the last 20 years.
However, if you look deeper, the company is apparently a sell at the current level.
Management execution is mainly to blame for the failing share price. The company has a massive share repurchase program, but many analysts believe the company overpays for the shares. In addition, aggressive acquisitions have resulted in $1.6 billion of debt.
Eventually, Dentsply will be a buy, but I expect further downside first.
Buy Or Sell?
Dentsply is a sell right now. My target downside is $35.00 per share and initial stops are suggested at $55.00 per share.
Risks To Consider: No matter how bullish a beat down stock may look, the shares can easily continue lower. Never invest without stop-losses no matter how confident you are in the position.
Action To Take: Consider investing in one or more of the “buys” listed above.