If you’re a value investor, there are a few distressed stocks you’ll want to pay close attention to right now. These are not the safest stocks to hold, as there is some uncertainty about how their future might unfold. But these stocks are trading at heavily discounted prices, and they’re also not unknowns in their respective sectors.
The actions I’m talking about are Walgreens Boot Alliance (NASDAQ:WBA) And I robot (NASDAQ:IRBT). While these options may not be suitable for risk-averse investors, here’s why you might want to consider these stocks if you’re willing to be patient and can stomach some risk.
1. Walgreens Boot Alliance
Walgreens Boots Alliance has some excellent assets in its portfolio, namely its brand. When you think of Walgreens, you’ll probably think of your neighborhood pharmacy. This brand recognition helps it stand out from the rest and perhaps encourages consumers to turn to their local Walgreens rather than a big box giant like Walmart.
The risk with Walgreens is that the company will have difficulty achieving profitability. It also cut its dividend this year and is in the midst of a big turnaround, which involves launching 1,000 primary care clinics by 2027. It partnered with primary care provider VillageMD to undertake the effort .
This turnaround strategy is risky, but it’s the company’s new CEO, Tim Wentworth, who makes it an intriguing play. He arrived in October, and in January he cut the dividend, wasting no time in taking a step that seemed obvious to many investors.
The payment was not sustainable â certainly not if the company also wanted to focus on its long-term healthcare strategy. And this is also the reason why I would not suggest relying on the dividend, because even at a reduced rate the payout may not be safe.
If you’re investing in Walgreens, the appeal is that the stock is so depressed that it’s trading at a level it hasn’t been at since the ’90s. This could really be a once-in-a-generation buying opportunity. . But that’s only if things go well and Wentworth is able to make the turnaround a success.
Many businesses fail in these situations. And investors need only look as far as Help with rites bankruptcy to see the risk here. Walgreens is banking on its trusted name and reputation to become the go-to place for people with health questions and pharmacy needs, rather than a Walmart or Amazon.
Walgreens is a risky stock, as it has suffered a net loss in three of its last four quarters. If you’re a contrarian investor willing to take risks and believe in Wentworth, Walgreens stock could have huge upside potential. But before investing, you need to carefully examine your financial situation because you may also face significant losses if things don’t go as planned for the year. healthcare company.
2. iRobot
iRobot also has ties to Amazon, but for different reasons. Rather than being a competitor, Amazon sought to buy the robot vacuum cleaner. Unfortunately, due to regulatory hurdles in the European Union, the deal ultimately fell through this year and iRobot shares subsequently crashed.
iRobot shares haven’t traded this low since 2009, as their valuation hovers around book value, with a price-to-book multiple of 1.3. The heavily discounted stock also trades at just 0.3 times revenue.
The problem is that iRobot’s business simply isn’t growing and its losses are piling up. For the final three months of 2023, iRobot reported revenue totaling $307.5 million, down 14% from the same period a year earlier. And even though the company’s net loss narrowed from $84.1 million to just $63.6 million last quarter, the lack of profitability remains a big problem for the company.
The company says it is urgently working to reduce costs and “create a more sustainable business model,” but as with Walgreens, this is a turnaround project that carries significant risks. iRobot has cut costs and laid off staff, but the company needs both a path to profitability and growth catalysts for investors to be bullish on the stock again.
With stronger competition and more affordable options to choose from these days, the company and its Roombas now have a tough road ahead. The stock’s modest market value of $270 million suggests there could be plenty of room for growth for the stock: Amazon was willing to pay $1.4 billion for the company. If iRobot manages to clean up its finances, it could then become a safer option for investors and perhaps attract another buyer.
But as with Walgreens, it’s a risky stock and investors should prepare for high volatility.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Amazon, Walmart, and iRobot. The Mad Motley has a disclosure policy.
2 distressed stocks that haven’t been this cheap in over 10 years was originally published by The Motley Fool
