It is better to clear out stocks with empty potential to make room for companies that have proven their worth in 2024.
While these three stocks have upsides, there is doubt about their continued performance and whether or not their potential outweighs their current challenges and valuations. After seeing what the rest of 2024 will bring to these stocks, you can decide whether to hold or heed the warning and avoid the danger of a dropoff.
We’ll detail the current financial and economic challenges troubling these stocks and what this could mean for investors who own shares.
Hormel Foods (HRL)
Hormel Foods (NYSE:HRL) has established itself as a top company in food products and has had a long history of solid dividends, earning it the title of blue-chip. However, the company has not had an easy ride, and despite consistently increasing dividends, the stock’s price has taken a severe hit.
Hormel is very dependent on the prices of food-related commodities such as poultry and pork and has suffered due to volatility in that sector. Breakouts of bird flu and regulations from the pandemic damaged Hormel, which it has yet to recover from fully.
The damage reached the supply chain, and sales also took a hit, with reverberations visible even in Hormel’s most recent earnings report. The last few quarters have shown a flat sales volume, and the operating margin has dipped slightly year-over-year.
The company continues to protect its dividend but has yet to rise above these ongoing challenges. Earnings per share is down to $0.34, and the outlook for the rest of this year promises much the same.
Although the price has dropped, the company’s limited earnings potential still makes it a highly valued asset. Therefore, selling this blue-chip stock and investing elsewhere may be best.
Nio (NIO)
Chinese EV maker Nio (NYSE:NIO) has been a hot stock, with many investors buying into the company’s enormous potential. Unfortunately for many, the stock has yet to realize this potential and shows a shaky performance that should be noted before holding any further.
Despite the considerable buzz that Nio stirred up following its IPO, the stock has fallen from its former glory. It came out of the gates roaring, but deliveries and sales have since slowed tremendously, showing a 5% increase in sales year over year in Q4 2023 and an 11.3% decrease from Q3. The company’s gross margin also took a hit with vehicle margins seeing little growth.
Nio has had to overcome struggles within China, including a slow economy and harsh regulatory environment, but it has also faced struggles overseas. Europe and the U.S. are imposing higher tariffs on Chinese EVs, severely limiting Nio’s ability to reach out and overcome domestic headwinds.
It will be impossible for Nio to overcome its relatively high debt and even more difficult to cross the profitability line for some years. While some investors may want to hold on to the EV maker’s potential, much risk is involved, with little return for the foreseeable future.
Williams-Sonoma (WSM)
Williams-Sonoma (NYSE:WSM) has been a popular home and kitchenware retailer for many years. The stock has shown excellent performance over the last year, with solid demand and earnings. However, this stock may have peaked, and there may be only one direction to go from here: down.
The first indicator is the company’s guidance for the full year of 2024. Williams-Sonoma had an excellent quarter and increased its initial operating margin guidance. This new operating margin estimate of 17%- 18% falls below the margin reported in Q1 of 19.5%. In other words, the rest of this year will likely not be such a smashing success.
While the outlook does not indicate a bad performance, the stock trades at a comparatively expensive price. Coupled with interest rates, shrinking demand for home improvement, and lower consumer spending, this limited growth will likely continue, making Williams-Sonoma overvalued and a sell for this month.
On the date of publication, Joel Lim did not have (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.