December 11th, 2017

3 Stocks Under $50 with Warning Signs

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HOG Cover Image

Stocks in the $10-50 range offer a sweet spot between affordability and stability as they’re typically more established than penny stocks. But their headline prices don’t guarantee quality, and investors should exercise caution as some have shaky business models.

These dynamics can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. That said, here are three stocks under $50 to avoid and some other investments you should consider instead.

Harley-Davidson (HOG)

Share Price: $25.71

Founded in 1903, Harley-Davidson (NYSE: HOG) is an American motorcycle manufacturer known for its heavyweight motorcycles designed for cruising on highways.

Why Do We Avoid HOG?

  1. Demand for its offerings was relatively low as its number of motorcycles sold has underwhelmed
  2. Poor free cash flow margin of 7.9% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
  3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Harley-Davidson’s stock price of $25.71 implies a valuation ratio of 19.6x forward P/E. Dive into our free research report to see why there are better opportunities than HOG.

MDU Resources (MDU)

Share Price: $20.77

Founded to provide electricity to towns in Minnesota, MDU Resources (NYSE: MDU) provides products and services in the utilities and construction materials industries.

Why Are We Bearish on MDU?

  1. Customers postponed purchases of its products and services this cycle as its revenue declined by 20.1% annually over the last five years
  2. Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
  3. Free cash flow margin shrank by 24.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

MDU Resources is trading at $20.77 per share, or 19.4x forward P/E. Read our free research report to see why you should think twice about including MDU in your portfolio.

Core Laboratories (CLB)

Share Price: $11.19

With roots dating back to the first commercial oil boom, Core Laboratories (NYSE: CLB) analyzes rock and fluid samples from oil and gas reservoirs to help energy companies optimize production and recovery.

Why Do We Pass on CLB?

  1. 3.1% annual revenue growth over the last five years was slower than its energy upstream and integrated energy peers
  2. Smaller revenue base of $519.2 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
  3. Gross margin of 20.3% reflects its high production costs and unfavorable asset base

At $11.19 per share, Core Laboratories trades at 1x forward price-to-sales. Check out our free in-depth research report to learn more about why CLB doesn’t pass our bar.

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