2 Underperforming Stocks to Consider Decreasing Exposure To
Shareholders of BlackBerry Ltd. (NYSE:BB) and Alexander's Inc. (NYSE:ALX) have seen their assets dramatically decline in value in recent years, underperforming the S&P 500 Index substantially. It also appears their profitability is not improving and financial conditions could be stronger. In short, prospects for these companies look grim. In addition, sell-side analysts on Wall Street have issued lackluster recommendation ratings for these companies, while most of the market has an overweight median rating. This indicates the share prices of these stocks are expected to continue to underperform the market in the coming months.
BlackBerry
BlackBerry (NYSE:BB) is a Canadian provider of intelligent security software and services to businesses and governments worldwide.
Shares have tumbled 22% so far this year, 46% over the past year and 12% over the past three years, underperforming the S&P 500 by 17%, 62% and 79%.
BlackBerry does not pay a dividend. Financial conditions don't look solid as the Altman Z-Score is 1.29, indicating financial distress and the possibility of bankruptcy. Additionally, the return on invested capital is -11.4%, which means value is being destroyed rather than created. GuruFocus rates the company's financial strength 4 out of 10.
GuruFocus rated the company's profitability 2 out of 10. For this rating, these are the financial indicators that weighed the most heavily: a net margin of -60.64% (versus the industry median of 2.37%) and a return on capital ratio of -201.54% (versus the industry median of 15.65%). The three-year revenue growth rate is -2% (versus the industry median of 5.7%).
The expected rate hike by the U.S. Federal Reserve and other central banks will not create a favorable environment for technology stocks. The market is already evaluating this scenario as the technology sector has declined significantly over the past three months. Traders had glimpses well in advance that the Fed was planning to switch from accommodative to more hawkish policies in a bid to curb the rapid rise in inflation. Whether it is three rate hikes or seven, the tighter monetary policy reduces BlackBerry's chances of improving its financial condition and profitability. As such, the share price may continue to decline.
Shares traded around $7.24 each at close on Monday for a market capitalization of $4.2 billion and a 52-week range of $7.13 to $20.17.
On Wall Street, the stock has one recommendation rating of underweight.
Alexander's
Alexander's (NYSE:ALX) is a real estate investment trust based in Paramus, New Jersey that owns real estate in New York City.
Shares have declined 3% so far this year, 4% over the past year and 29% over the past three years, while the S&P 500 has dropped 5.4% so far this year but increased by 16% over the past year and gained 67% over the past three years.
The company pays a good quarterly dividend of $4.50 per share, determining a trailing and forward dividend yield of 6.96%. The balance sheet could be better as the Altman Z-Score of 1.65 indicates the company is in dire financial straits. The possibility of bankruptcy cannot, therefore, be ruled out.
Regarding profitability, GuruFocus assigned a rating of 7 out of 10. However, over the past three years, revenue has declined 4.8% annually, Ebited has decreased 12.4% annually and earnings per share excluding one-time items has fallen19.6% annually. Therefore, the company's profitability appears to be deteriorating over time.
An expected rise in interest rates to counter record inflation could hamper investment and dampen the demand for mortgages. As a result, the next economic climate may not be favorable for U.S.-listed real estate stocks, including Alexander's. The stock price could continue to trade lower.
Shares closed at $257.67 on Monday for a market capitalization of $1.32 billion and a 52-week range of $246.149 to $308.39.
On Wall Street, the stock has one recommendation rating of sell.
This article first appeared on GuruFocus.
