Value investing has produced some of the world’s most famous investing billionaires, including Warren Buffett, David Einhorn, and Seth Klarman, who built their fortunes by purchasing wonderful businesses at reasonable prices. But these hidden gems are few and far between - many stocks that appear cheap often stay that way because they face structural issues.

Separating the winners from the value traps is a tough challenge, and that’s where StockStory comes in. Our job is to find you high-quality companies that will stand the test of time. That said, here are three value stocks climbing an uphill battle and some other investments you should look into instead.

Constellation Brands (STZ)

Forward P/E Ratio: 12.9x

With a presence in more than 100 countries, Constellation Brands (NYSE: STZ) is a globally renowned producer and marketer of beer, wine, and spirits.

Why Are We Wary of STZ?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Sales are projected to tank by 3.1% over the next 12 months as demand evaporates further
3. Low returns on capital reflect management’s struggle to allocate funds effectively, and its falling returns suggest its earlier profit pools are drying up

Constellation Brands is trading at $156.20 per share, or 12.9x forward P/E. If you’re considering STZ for your portfolio, see our FREE research report to learn more.

Xerox (XRX)

Forward P/E Ratio: 4x

Pioneering the modern office copier and inventing technologies like Ethernet and the laser printer, Xerox (NASDAQ: XRX) provides document management systems, printing technology, and workplace solutions to businesses of all sizes across the globe.

Why Do We Steer Clear of XRX?

1. Flat sales over the last five years suggest it must find different ways to grow during this cycle
2. Free cash flow margin shrank by 5.5 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens

At $1.88 per share, Xerox trades at 4x forward P/E. Dive into our free research report to see why there are better opportunities than XRX.

Brighthouse Financial (BHF)

Forward P/B Ratio: 0.8x

Spun off from MetLife in 2017 to focus specifically on retail financial products, Brighthouse Financial (NASDAQ: BHF) provides annuity contracts and life insurance products designed to help individuals protect wealth, generate income, and transfer assets.

Why Should You Dump BHF?

1. Net premiums earned contracted by 7.7% annually over the last five years, showing unfavorable market dynamics this cycle
2. Book value per share tumbled by 11.1% annually over the last five years, showing insurance sector trends are working against its favor during this cycle
3. Elevated debt-to-equity ratio of 1.3× suggests the firm is overleveraged and may struggle to secure additional financing

Brighthouse Financial’s stock price of $63.80 implies a valuation ratio of 0.8x forward P/B. Check out our free in-depth research report to learn more about why BHF doesn’t pass our bar.

High-Quality Stocks for All Market Conditions

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