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5 Value Traps Every Stock Investor Should Avoid

Jonathan Berr, InvestorPlace.com

InvestorPlace - Stock Market News, Stock Advice & Trading Tips


With stocks trading at or near record highs in the early days of the Trump administration, finding stocks to hate is depressingly easy. I have to remind myself not to ask the question whether a stock can get any cheaper, because the answer is "of course it can."

Just look at GoPro Inc. (GPRO), which is down 40% over the past year, and is taking another beating to make room for new camera stock Snap Inc (SNAP).

Or there's Twitter Inc. (TWTR), with a nonexistent price-earnings ratio and roughly 20% market decline over the past 12 months.

Sometimes stocks are cheap for good reason, making them value traps for unwary investors. These five firms are a case in point.

Prices and data are from the original InvestorPlace story published on March 6, 2017. Click on ticker-symbol links in each slide for current prices and more.

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Shares of the Minnesota retailer are reeling in the wake of its recent godawful earnings and disappointing guidance.

Furthermore, Target Corporation also announced plans to invest more than $7 billion in the next three years to revamp 600 stores by 2019 and introduce more than 12 new store brands over the next two years.

While Wall Street applauded CEO Brian Cornell's plans, analysts questioned why he isn't shuttering poorly performing stores like every other retailer in the world. The U.S. has got way too many stores, and traditional brick-and-mortar chains like TGT are in trouble because growth in digital sales (34% in the latest quarter) isn't enough to offset the stagnation in its core business.

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My how the once mighty have fallen! Since its much-hyped 2015 IPO, priced at $20, Fitbit Inc. stock has plunged so far under water that it needs its own submarine.

FIT tried to right its fiscal ship in 2016, introducing four new fitness trackers, the most ever. Customers, however, weren't impressed.

Volume during the fourth quarter fell to 6.5 million devices from 8.2 million during the same period a year ago, as consumers increasingly turn to free or low-cost apps.

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Buffalo Wild Wings

The double shot of high chicken prices and declining NFL ratings is bad news for the casual dining chain, where same-store sales have posted four straight declines.

There is no sign that Buffalo Wild Wings will reverse this worrisome trend anytime soon even though activist investor Marcato Capital Management is starting to pressure the company. Casual dining chains like BWLD are being squeezed by lower-cost quick service (fast food) operators, a trend that shows no signs of improvements.

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Per-capita consumption of soda is at a multi-decade low and shows no signs of improving. The success of the City of Philadelphia's soda tax is bound to encourage other municipalities to consider implementing one of their own.

Media reports in Philadelphia indicate that local bottlers for The Coca-Cola Co. and PepsiCo, Inc. (PEP) are laying off workers amidst double-digit declines in sales. Unlike Pepsi, KO doesn't have a non-beverage business that can cushion the blows.

That's why PEP stock is the better choice for investors.

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Boston Beer

The craft beer boom has become a bust and Boston Beer Company Inc. has crashed hard. SAM recently posted its first annual sales drop in more than a decade and further annoyed Wall Street by offering 2017 per-share guidance of between $4.20 to $6.79.

The forecast has such a wide range that investors are wondering why SAM bothered to offer it. To make matters worse, SAM's first spring beer called Hopscape has failed to gain any traction.

Looking ahead, the future looks bleak. There were just 97 breweries in the U.S. when SAM was founded in 1984. Now, there are more than 5,000.

This article is by Jonathan Berr of InvestorPlace. As of this writing, he held none of the aforementioned securities.

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