Market swings can be tough to stomach, and volatile stocks often experience exaggerated moves in both directions. While many thrive during risk-on environments, many also struggle to maintain investor confidence when the ride gets bumpy.
Navigating these stocks isn’t easy, which is why StockStory helps you find Comfort In Chaos. Keeping that in mind, here are three volatile stocks to steer clear of and a few better alternatives.
Semtech (SMTC)
Rolling One-Year Beta: 2.23
A public company since the late 1960s, Semtech (NASDAQ: SMTC) is a provider of analog and mixed-signal semiconductors used for Internet of Things systems and cloud connectivity.
Why Are We Out on SMTC?
- Growth came at the expense of profits over the last five years as its operating margin losses have increased
- Free cash flow margin dropped by 6.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Negative returns on capital show management lost money while trying to expand the business, and its decreasing returns suggest its historical profit centers are aging
Semtech’s stock price of $48.02 implies a valuation ratio of 27.9x forward P/E. To fully understand why you should be careful with SMTC, check out our full research report (it’s free).
Albany (AIN)
Rolling One-Year Beta: 1.40
Founded in 1895, Albany (NYSE: AIN) is a global textiles and materials processing company, specializing in machine clothing for paper mills and engineered composite structures for aerospace and other industries.
Why Do We Avoid AIN?
- Annual revenue growth of 3.7% over the last five years was below our standards for the industrials sector
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 7.7% annually while its revenue grew
- Free cash flow margin dropped by 8.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Albany is trading at $62.42 per share, or 14.2x forward EV-to-EBITDA. If you’re considering AIN for your portfolio, see our FREE research report to learn more.
Bank of America (BAC)
Rolling One-Year Beta: 1.24
Tracing its roots back to 1784 and now serving approximately 67 million consumer and small business clients, Bank of America (NYSE: BAC) is a global financial institution that provides banking, investing, asset management, and risk management products and services to individuals, businesses, and governments.
Why Are We Cautious About BAC?
- 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 2.1% for the last two years
- Scale is a double-edged sword because it limits the firm’s growth potential compared to its smaller competitors, as reflected in its below-average annual net interest income increases of 4.8% for the last five years
- Net interest margin of 2% is well below other banks, signaling its loans aren’t very profitable
At $48.15 per share, Bank of America trades at 1.3x forward P/B. Check out our free in-depth research report to learn more about why BAC doesn’t pass our bar.
High-Quality Stocks for All Market Conditions
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