You may have volatile stocks in your investment portfolio and you’re not sure whether you should buy more, hold or if it’s time to sell.
As we enter into a new year, investors ought to construct a stable investment portfolio with stocks positioned for growth.
Managing a portfolio’s risk and keeping its strength starts with focusing on “buy and hold” investments that have promise for long-term gains and tossing stocks that may bog down potential. These five stocks’ not-so-stellar performance has landed them on the stocks to sell or stay away from list in January:
— Darden Restaurants (ticker: DRI)
— Xerox Holdings Corp. (XRX)
— Federal Realty Investment Trust (FRT)
— Groupon (GRPN)
— Kohl’s Corp. (KSS)
Darden Restaurants (DRI)
Darden Restaurants owns and operates more than 1,800 restaurants across the U.S. and Canada, including Olive Garden, LongHorn Steakhouse and The Capital Grille, among others. The Orlando-based restaurant operator had suspended its dividend after its revenues were hit by the pandemic’s lockdowns in 2020.
After Darden’s sales sank 43% in 2020’s fourth quarter, its earnings for the following quarters were also down, but not by as much.
In the first fiscal quarter of 2021, total sales of $1.5 billion fell 28% from $2.1 billion during the same time last year. During the second quarter of 2021, there was a slump in year-over-year trends: Olive Garden sales fell 23.5%, LongHorn Steakhouse sales dropped 12.6% and Darden’s fine dining was down 34.3%.
While Darden’s performance has improved just slightly — it’s down by 1.2% since the start of this year — the company still faces challenges ahead.
Darden’s latest balance sheet holds $1.54 billion in current liabilities or short-term financial obligations, which are typically due within a year, and an additional $5.92 billion in other debt, compared with its $777 million in cash position. DRI’s liabilities, short- and long-term, far exceed cash. This could be a sour point for investors.
Despite some confidence from market participants stemming from the distribution of COVID-19 vaccines, we are still living amid the pandemic. This means social distancing measures will continue to impact indoor restaurant dining, which means Darden’s businesses experiencing enduring losses. Darden may not be able to recover to prepandemic levels in the foreseeable future and investors may need to brace for more market volatility in DRI stock.
Xerox Holdings Corp. (XRX)
Headquartered in Norwalk, Connecticut, this 100-year-old company offers document management solutions, mainly known for its print and digital products and services. Since many office workers are working from home, there hasn’t been as much demand for Xerox’s products. More broadly, with technological advances, traditional printing is fading as documents have been moving from paper to digital.
Looking at earnings, Xerox’s operating cash flows were down for three consecutive quarters in 2020.
As a result of declining revenues, shareholder value is on the decline.
Xerox stock underperformed with one-year returns down 36%, while the market performance of the tech sector was positive. The Vanguard Information Technology ETF ( VGT), for example, has a one-year total return of more than 40%.
For the past two decades, Xerox hasn’t experienced much in the way of growth. At the time of this writing, XRX had a 52-week low of $14 and a high of $38, with a current market value around $23.
Years of declining market value shows its growth has been diminishing. Even if the company recovers from the pandemic, its future growth may be more stagnant than that of its competitors and the industry.
Federal Realty Investment Trust (FRT)
This real estate investment trust, or REIT, owns, manages and develops retail real estate in the Northeast and Mid-Atlantic states as well as in Florida and California. Federal Realty’s portfolio consists of mixed-use projects made for shopping, dining and working, which surrounds densely populated affluent neighborhoods.
The pandemic sparked a retail evolution, moving consumers away from in-store shopping to online, exposing weakness for physical retail spaces. This retail trend, triggered by the pandemic, has resulted in FRT’s tenants deferring rent and lumping them into larger payments. As a result, Federal Realty says it projects that tenant rent collections will fall below historical levels, leading to unfavorable effects on the REIT’s operations. Rent is always a risk with real estate investments, but it’s heightened as a result of the economic hardships the retail sector has been facing and will continue to face.
Occupancy levels fell to 92% in September. A reduction in occupancy levels can pose a risk to the REIT as more open spaces preclude cash flows from coming in. The continued economic challenges have also resulted in many retailers going out of business and not being able to meet rent obligations. This struggle can make it difficult to find new tenants to fill retail spaces.
FRT stock is down around 30% since this time last year, with a market value of around $83. It’s underperforming compared with the REIT industry and the broader market.
Groupon, the discount, e-commerce marketplace that connects consumers to local merchants is one for a bearish tone. GRPN stock is down more than 20% over the past year and is underperforming in the online retail sector. In the third quarter of 2020 alone, retail e-commerce sales grew 36%, according to the U.S. Census Bureau.
Investors should be wary of Groupon considering its market value has been volatile since it joined the Nasdaq nearly 10 years ago. GRPN’s share price was $522 when it first joined the index, compared with its market value at around $36 today. To improve its weak share price, Groupon announced a reverse stock split in June 2020. A reverse stock split is where existing shares are combined to form more valuable shares, helping increase the stock’s market value. GRPN stock fell on the news.
Groupon has prioritized increasing its cash position to improve profitability since its business has been run down by low revenue and reduced profit margins. In Groupon’s most recent quarter, revenue clocked in at $304.0 million, down 39% compared with the third quarter 2019.
GRPN saved $140 million through company restructuring and furloughs in 2020 and is working toward increasing its savings to $200 million in 2021, according to its latest earnings release.
Kohl’s Corp. (KSS)
The retail giant headquartered in Menomonee Falls, Wisconsin, operates more than 1,100 stores, selling apparel, footwear, cosmetics and home products. The pandemic has significantly impacted Kohl’s business, decreasing demand for its products and knocking its sales and revenue.
While the company’s online sales may have helped improve cash flows, there are still constraints on its margins. Compared with previous years, Kohl’s had no revenue growth in 2020. In its most recent quarter, revenue declined 14%, compared with the same period in the prior year. The retailer expects to experience more volatility in its business, and investors should expect the same for its stock.
Kohl’s debt also may pose a risk for investors. The retailer’s balance sheet has $3.7 billion in current liabilities and $2.4 billion in long-term debt, while the company only has $1.9 billion in cash and cash equivalents, according to its third-quarter results.
Ultimately, KSS stock has been volatile for many years. Shares were flat for the most part from 2009 through most of 2014 with a market value changing between around $42 to roughly $58. KSS shares are down more than 15% since last year, with a current market value of about $40.
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