We recently compiled a list of 10 Worst Falling Stocks To Buy Now. In this article, we will look at where Herbalife Ltd. (NYSE:HLF) ranks among the 10 worst falling stocks to buy now.
To the new investor, the stock market can appear to be an unpredictable graph that has no inherent logic to its ups and downs. However, this is far from reality as all stock performance is primarily driven by fundamentals, market sentiment, news, large buys or sells, and other factors.
As a result, the astute investor can make money on stocks by trying to predict whether a firm has sizeable catalysts that are not accounted for in the share price. Of course, this is a risky approach, and one that isn’t recommended by Warren Buffett as we covered in 10 Best Stocks For Beginners With Little Money. However, as hindsight is 6/6, looking back into time explains a lot about how firms see their share prices drop.
Diving deeper, one doesn’t have to look far to find stocks that have struggled in the wake of shocking and disappointing fundamental performance. One of the best examples of 2024 is the 12th Best Data Center Stock To Buy According to Jefferies, Citi and Wall Street Analysts. Set up in 1968, the firm has defined the era of personal computing through its processors. Yet, in a world that’s thirsty for chips in 2024, its shares are down by a painful 52% year to date and a stunning 69% since their peak in August of 2000.
So why is this stock falling even though it has $191 billion in total assets, $25 billion in cash and equivalents, and generated $55 billion in trailing twelve month revenue? Well, the answer is simple. During its second quarter of 2024, the firm’s profit dropped by 85% annually as it posted a net loss of $1.6 billion. Its size and scale had enabled the firm to be a dividend paying stock, a fact that had helped it retain some stock value even as troubles started to become evident last year. The current dividend yield is 2.29%, but the dividends will be suspended starting Q4 as part of the firm’s $10 billion cost reduction plan.
Its shares tanked by 30% after the second quarter earnings, and investor pessimism is baked in due to the competitive nature of the semiconductor industry. The chip manufacturer has lost its lead in developing cutting edge semiconductor manufacturing technologies to a Taiwanese rival, and investors are on the sidelines as its own 18A chip process is only expected to lead to revenue in late 2025 and beyond.
Yet, even though a 52% year to date drop is bad, it doesn’t make the firm one of the worst falling stocks right now. When we consider falling stocks with a market capitalization greater than $300 million, one notable example in 2024 is an autonomous driving stock that was a billionaire hedge fund boss’s 4th best long term stock pick as of Q3 2023. The fund had first bought the stock in Q2 2021, and its shares are down by 73% year to date.
This firm manufactures light detection and radar (LiDAR) sensors that are primarily used by autonomous vehicle companies to sense their environment. As has been the case with the chip manufacturer, the firm’s troubles also have to do with its business. However, while the semiconductor industry is robust, the auto industry and particularly the electric vehicle sector have struggled due to high rates depressing prices. For this particular stock, the troubles were evident in February when the shares slipped by 10% after it announced that its biggest customer Volvo was experiencing production delays.
The woes were further exacerbated in April after a BofA note downgraded the shares to Underperform from Neutral and slashed the share price target to $1.20 from $3.50. Its stock tumbled by 16% as the analysts noted that “model launch delays and reduced volume expectations for vehicles expected to adopt LIDAR technology drive a meaningful drop in our volume forecasts.” The final nail in the proverbial coffin came in August after $16.5 million in revenue and $0.18 loss per share missed FactSet analyst estimates of $20.4 million and $0.17 million. The stock dived by another 37% and has been in the dumps since then.
Speaking of the car industry, another falling stock in 2024 was ironically the 11th best performing stock on the NASDAQ exchange in 2023 as of October 2023. The stock had posted a 288% gain by then, and in 2024, the shares are down 78.8% year to date. This firm is a lithium miner, however, it has yet to produce a profit, and operating expenses have increased right when lithium prices are at historically low levels. The lithium industry slowdown has pushed out its profit estimates for the future, and consequently, the shares have suffered.
Our Methodology
To make our list of the worst falling stocks to buy, we ranked the 50 worst performing stocks of 2024 with a market cap greater than $300 million by their short interest as a percentage of shares outstanding. Out of these, the stocks with the highest short interest percentage were selected.
For these stocks, we also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A close-up of a laptop monitor with stock market prices scrolling up and down.
Herbalife Ltd. (NYSE:HLF)
Number of Hedge Fund Holders In Q2 2024: 29
Short Interest % of Shares Outstanding: 14.61
YTD Share Price Loss: 50.52%
Herbalife Ltd. (NYSE:HLF) is a troubled dietary supplement company based out of Los Angeles. It is a global company, which has also contributed to disappointing stock performance. Herbalife Ltd. (NYSE:HLF)’s revenue in 2023 sat at $5.06 billion marking a 2.7% annual drop from 2022’s $5.20 billion. This came on the back of a slow Chinese economy leading to a sales slowdown, as well as inflation biting into the firm’s margin. By the 2023 close, Herbalife Ltd. (NYSE:HLF)’s profit was $142 million, for a strong 56% annual drop as inflation ate into its margins. The costs also grew because of the firm’s strategy to overhaul its distributor network right when its sales were struggling – in a move similar to American Airlines’ now reversed decision to overhaul its relationship with travel agents. Herbalife Ltd. (NYSE:HLF) problems are also exacerbated by its hefty leverage. As of Q2 2024, it had a long term debt to total asset ratio of 0.96 which further stresses cash flows and limits its ability to raise finance.
Herbalife Ltd. (NYSE:HLF)’s management provided key details about its debt during the Q2 2024 earnings call:
“Since our last earnings call, we have paid down our revolver by $90 million. As a reminder of what we previously reported in April, we completed a $1.6 billion senior secured refinancing and repaid all amounts outstanding on our 2018 credit facility as well as more than half of the amount outstanding on the 2025 notes.
The net result of this transaction or these transactions is that we pushed the vast majority of our debt maturities out to 2029. With the only sizable maturity we faced prior to 2028, being the $262 million outstanding on the 2025 notes, which we remain on track to repay. And as I noted earlier, we further reduced our total leverage ratio to 3.5x as of June 30, with the goal to achieve our target of 3x by the end of 2025, following the repayment of the 2025 bonds.”
Overall HLF ranks 9th on our list of the worst falling stocks to buy now. While we acknowledge the potential of HLF as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than HLF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.