Value stocks are enjoying their moment in the sun as nervous investors cycle towards fundamentals in light of growth and tech stocks contributing more than their fair share to recent market gains. Value stocks tend to be a safe harbor – dividends, low multiples, and stable operations can help anchor portfolios and shield against volatility. However, when the reverse occurs, this leads to this list of value stocks to sell.
But some value stocks are cheap for a reason. These stocks, or value traps, have all the hallmarks of a perfect value stock pick. They trade near or below book value, offer dividends, and tend to be well-known in their industry with years of operational excellence behind them. But, scratch below the surface, and you’ll often find signs pointing to why investors aren’t interested despite low pricing.
These three stocks might seem like a value investors’ dream, but there are big problems brewing for each – making them value stocks to sell.
Boeing (BA)
Boeing (NYSE:BA) is easily the top value stock to sell in 2024 as a range of problems keep per-share pricing below pre-pandemic levels. January orders for the company’s flagship aircraft were in the gutter, with just 27 deliveries and three new orders compared to December’s staggering 371 orders. The trouble, of course, comes from a range of aircraft problems, including mis-drilled holes and doors opening mid-flight. To that end, the company delayed its planned 737 Max 10 deployment by at least five years in a “best case” scenario, according to CEO Scott Kirby.
The core problem facing Boeing isn’t systems or processes – instead, as analysts have pointed out for years, emphasis on short-term shareholder value at the expense of safety and engineering could ironically be what makes the stock a losing proposition. One reporter, who appeared in a documentary detailing Boeing’s ongoing trouble, summed it up well: “Boeing, like many, many publicly traded companies in the country, put a premium on satisfying its shareholders” and that “the results of that at the end of the day were inferior checks and balances inside the company, a culture that promoted short-term profitability over long-term quality.”
Systemic rot of this nature isn’t easy to reverse, especially with as large a company as Boeing. While the company itself isn’t going anywhere soon, it’s a classic value trap – and a value stock investors should sell ASAP.
Nokia (NOK)
Trading below book value and at just 0.8x sales, with a 5.41% total yield to boot, Nokia (NYSE:NOK) seems like a value stock ready to rebound. But that’s a mistake, if one you’d be forgiven for making. Nokia has all the hallmarks of a value trap, making it one value stock to sell stat.
A major blow to Nokia’s bottom line came from an October 2023 announcement that AT&T (NYSE:T) elected to leverage an alternate vendor for its planned open radio access network development, directly costing Nokia as much as $14 billion in direct sales and uncountable downstream benefits. Nokia said that “expected revenue from these specific activities will gradually decrease over the next 2-3 years,” meaning investors face sales sliding downward further if they don’t ditch the supposed value stock today.
Nokia is trading near multi-year lows today with limited upside in sight. But don’t get caught in this value trap, even if you have conviction in its past meme stock status. This makes it one of those value stocks to sell.
Nike (NKE)
Nike (NYSE:NKE) just can’t keep up. Over the past year, the sports apparel’s stock has fallen nearly 20%, failing to keep pace with broader market trends. Despite this underperformance, shares remain significantly overvalued, trading at 31 times earnings and 11 times book value. This comes after a dismal December earnings report revealing a weak 1% growth target and plans to slash over $2 billion in costs.
A substantial portion of these cost reductions will likely come from workforce reductions, increasing severance payouts. Estimates suggest Nike may spend up to $450 million on severance over the next few years as part of extensive layoffs aimed at long-term savings. However, such mass layoffs often signal deeper underlying issues.
Consumer preferences have shifted away from Nike’s products, driven by the availability of more affordable alternatives and constrained household budgets. This poses a significant challenge to Nike’s core business of luxury sports apparel. Considering this, a potential strategy shift towards value pricing could further erode Nike’s brand equity in exchange for short-term gains, making its current consumer problems even worse.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
