Some experts say that it’s a smart idea to start investing during a recession. But that doesn’t mean every business is a good investment.
The COVID-19 related recession and layoffs have been challenging for many of us, but they’ve also been challenging for some big businesses that might surprise you. In fact, if you’re looking at which money moves to make in a volatile stock market, the following companies might not be the best choice for your portfolio — and they may never fully recover.
J.C. Penney Co.
Is it strange that J.C. Penney Co. stock is literally a penny stock? That means it trades for less than $5 per share and is available over the counter, versus an exchange like the New York Stock Exchange. Some investors like to look at penny stocks as a chance to make a few bucks.
But investing in J.C. Penney Co. (JCPNQ) using the OTC markets might not be the best choice. Even though the department store brand has lasted 118 years, we might be seeing the end of an era. Earlier in 2020, J.C. Penney Co. announced that it would shutter 242 locations by the fall. Additionally, the company is still in bankruptcy proceedings.
Although some people like penny stocks, they aren’t for everyone and investing in J.C. Penney Co. might lead to losses later.
Even though global box office revenues were on the rise from 2005 to 2019, the movie theater business is struggling in 2020, thanks in large part to the coronavirus pandemic. With movie theaters around the country shuttered because of COVID-19, there was a huge hit to revenues.
AMC Theaters (AMC) might be feeling the pressure more than others. Back in April, AMC said it would stop paying rent to landlords, and was even sued over the move. Additionally, a spat with Universal Pictures over streaming versus the traditional distribution of its films isn’t helping the company much.
AMC’s stock price has dropped significantly from what it was at the beginning of the year. If you’re unsure this one will bounce back, now might not be the time to buy.
Planet Fitness, Inc.
As of Aug. 26, 2020, Planet Fitness, Inc. (PLNT), a gym, has seen improved performance, but the stock price is down overall on the year. A lower stock price isn’t necessarily a reason to avoid making an investment. In fact, buying when a stock price is down could be a good way to get a good deal. On the other hand, if you choose wrong, you could be losing more money than you put in.
Planet Fitness might not make it through COVID-19. Like many other businesses, gyms had to close their doors in many states. As consumers took their workouts into their own homes, concerns about the viability of gym businesses like Planet Fitness arose. Indeed, one of the biggest competitors to gyms like Planet Fitness is Peloton (PTON), which reported a surge in sales following the onset of the pandemic.
Rental car giant Hertz (HTZ) is barely staying out of the penny stock range. After being worth more than $100 in 2014, today’s HTZ is trading at less than $1.50 per share (as of Aug. 26, 2020). Coronavirus took a toll on all travel-related companies, and Hertz was no exception. In fact, the company filed for bankruptcy in 2020 and is required to get rid of nearly 200,000 cars in its fleet as part of the deal.
Although it might seem like a good time to pick up shares of HTZ while they’re so cheap, consider whether you think Hertz will pull through. As part of getting through bankruptcy, the company is trying to get up to $2 billion in financing. Taking on that much debt might not bode well for the company’s future.
Telecom company Frontier Communications (FTRCQ) was flying high in the 1990s through the early 2000s. However, the company’s stock price has been on the decline for years. As of Aug. 26, 2020, it’s worth 20 cents per share and can only be traded OTC as a penny stock.
Frontier was already in trouble before the COVID-19 pandemic. However, in April, the company filed for bankruptcy protection. Frontier is burdened with a large amount of debt. So even though the stock price is cheap, there is still the risk of loss if Frontier doesn’t regain any of its former glory. With other, more established telecoms in the mix, there isn’t much room for Frontier.
Bed Bath & Beyond
Consumer products giant Bed Bath & Beyond (BBBY) has long been a staple of malls everywhere. But although the coronavirus pandemic might help with the sale of soaps, other products aren’t faring so well. Indeed, the company’s 2020 second-quarter earnings report showed it missed earnings estimates, with quarterly revenue down 49.2% compared to the previous year.
When looking to the future, retail continues to be uncertain. Malls were in decline before the pandemic, and now there are expectations that retail could decline at an even faster pace. With the onset of COVID-19, many people have switched to online shopping, and stores like Bed Bath & Beyond might not survive. When you look at long-term trends, BBBY’s stock price has been in a downtrend that started even before this year.
Steak ‘n Shake
This one is a little bit of a different look. The Class B shares of Steak ‘n Shake’s parent company, Biglari Holdings, Inc. (BH), haven’t been doing terribly through the pandemic. The stock price is at $90.96 per share as of midday Aug. 26, 2020, which represents a slight gain year-over-year.
However, the Steak ‘n Shake brand has been struggling. The chain saw an operating loss of more than $18 million in 2019. So it was already in a precarious position before COVID-19 forced the company to convert many of its restaurants to counter-only service. For now, it looks like Steak ‘n Shake might not survive the pandemic, and its parent company might not be well-positioned either. The past few years have seen increasing operating losses and downward trending stock prices.
One of the biggest stories of April 2020 was that oil prices plunged to the point at which futures were actually in negative territory. As a result, it’s not much of a surprise that Chesapeake Energy (CHKAQ), an oil and gas company, took a pretty hard hit.
Oil and gas companies face a few challenges in getting back on track. Oil prices can be kept artificially low by production output from OPEC countries such as Saudi Arabia and Russia, and a shift toward renewables is also increasing pressure. CHKAQ has seen a steadily declining stock price for the past five years.
Pier 1 Imports
Another retailer that was seeing some problems prior to the pandemic is Pier 1 (PIRRQ). Prior to the pandemic, there were hopes the company would be able to reorganize in bankruptcy and maintain the brand. However, COVID-19 ended all hopes of that nature. Now Pier 1 is in the process of total liquidation.
The company is currently trading a little higher as an OTC penny stock. But penny stock prices can be volatile. Another concern with trading penny stocks is the fact they can be vulnerable to pump-and-dump schemes, in which buyers make purchases that increase the price, only to get rid of it for a profit while less-savvy investors are left with losses.
The high-end clothing retailer Nordstrom (JWN) might be confident in its ability to weather the pandemic now that its stores are reopening, but investors might not be as confident in the stock. Nordstrom reported a 40% drop in net sales during the first quarter of 2020, and struggled during the first part of the year, like many of its clothing retail counterparts.
Even though JWN has had some good days in 2020, if you look at the stock price trend over time, it continues to decline. Although shares are cheap and might be intriguing, long-term investors might not feel comfortable once they look at the company’s five-year trend.
Norwegian Cruise Lines
Norwegian’s Grand Princess gained notoriety as the cruise ship in which more than 3,500 people were stuck for days off the coast of California in the early days of the COVID-19 pandemic. It was no surprise when the stock price of Norwegian Cruise Lines (NCLH) plummeted in the aftermath.
Indeed, Norwegian is trading at less than $16 per share (as of Aug. 26, 2020), which is much lower than the $59.65 it was trading at in January of 2020. However, it’s not just that Norwegian itself says it has substantial doubt about its ability to continue to function in a world with coronavirus. Investors should look at the five-year price history of NCLH and consider that it has been in decline since before 2020.
Dave & Buster’s
Widely considered an arcade for adults, Dave & Buster’s (PLAY) has struggled like many other restaurants and bars since the onset of the coronavirus. In the first quarter of 2020, revenue was down 56.1% on a year-over-year basis. Even as things start opening up, though, investors might consider the fact that the business model relies on adults wanting to spend time touching things other people have touched. Although it’s too early to see whether this will have a long-standing impact, it’s a possibility to think about.
Finally, even though PLAY has recovered to a stock price of over $14 (as of Aug. 26, 2020) from its 2020 low of $4.87, the reality is the stock price has been trending lower for the past five years. Just because PLAY seems to be doing better, and the price might seem low, it’s important to consider whether the brand has staying power before investing.
The cosmetics industry has taken a big hit as a result of COVID-19, and beauty brand Revlon (REV) is no exception. The ways that coronavirus has changed our personal habits could mean less demand for makeup in the future, particularly when it comes to cosmetic items considered in the nice-to-have category. As a result, it’s no surprise the company’s revenue for the second quarter of 2020 came in at $78.5 million below estimates.
Even if you think the beauty industry will recover and Revlon might move forward, consider that even before the coronavirus pandemic, REV was seeing a decline in its stock market price. In the past five years, REV has dropped from more than $33 per share to just above $16 a share in mid-2019, to now around $7 per share (as of Aug. 26, 2020).
Although past performance doesn’t predict future results, it can provide a useful guide when considering how to invest money. Many companies are struggling right now, and some of them could recover. If you’re just getting started in the stock market and you can afford to buy while the stock is on sale, you could do well in the future.
However, consider the fundamentals of a company and look at how it was doing before the coronavirus. In some cases, the reality is that COVID-19 is merely hurrying the inevitable — and you might not want to invest in a company that was already struggling before the pandemic.