A highly volatile stock can deliver big gains - or just as easily wipe out a portfolio if things go south. While some investors embrace risk, mistakes can be costly for those who aren’t prepared.
At StockStory, our job is to help you avoid costly mistakes and stay on the right side of the trade. That said, here are three volatile stocks to steer clear of and a few better alternatives.
MasTec (MTZ)
Rolling One-Year Beta: 1.74
Involved in the 1996 Olympic Games MasTec (NYSE: MTZ) is an infrastructure construction company that specializes in the telecommunications, energy, and utility industries.
Why Are We Wary of MTZ?
- Gross margin of 13.1% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Incremental sales over the last five years were less profitable as its 2.1% annual earnings per share growth lagged its revenue gains
- 3.8 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
MasTec’s stock price of $177.12 implies a valuation ratio of 27.1x forward P/E. To fully understand why you should be careful with MTZ, check out our full research report (it’s free).
Hewlett Packard Enterprise (HPE)
Rolling One-Year Beta: 1.83
Born from the 2015 split of the iconic Silicon Valley pioneer Hewlett-Packard, Hewlett Packard Enterprise (NYSE: HPE) provides edge-to-cloud technology solutions that help businesses capture, analyze, and act upon their data across hybrid IT environments.
Why Is HPE Not Exciting?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 4.2% for the last five years
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 7.5% annually
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $23.58 per share, Hewlett Packard Enterprise trades at 10.4x forward P/E. Dive into our free research report to see why there are better opportunities than HPE.
Truist Financial (TFC)
Rolling One-Year Beta: 1.25
Born from the 2019 merger of BB&T and SunTrust in one of the largest banking combinations since the 2008 financial crisis, Truist Financial (NYSE: TFC) is a bank holding company that offers a wide range of financial services including consumer and commercial banking, wealth management, insurance, and lending solutions.
Why Are We Hesitant About TFC?
- Loans are facing end-market challenges during this cycle, as seen in its flat net interest income over the last five years
- Net interest margin of 3% is well below other banks, signaling its loans aren’t very profitable
- Earnings per share fell by 1.2% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
Truist Financial is trading at $46.10 per share, or 1x forward P/B. If you’re considering TFC for your portfolio, see our FREE research report to learn more.
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