Please ensure Javascript is enabled for purposes of website accessibility

2 Terrible Stocks for Retirees

By Tim Brugger - Dec 20, 2017 at 4:32PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Retired investors are often a bit more conservative than some, which is why some fluctuating stocks don’t pass muster.

There's certainly nothing wrong with retirees looking for stocks that offer growth over the long haul, but some simply aren't suitable. Stagnant to no growth, wild price fluctuations, and poor or uncertain management are some company attributes many retirees especially want to avoid.

Unfortunately for Groupon (GRPN -4.93%) and HP Enterprise (HPE -2.04%) shareholders, those companies meet the criteria of being two terrible stocks for retirees. Continual changes, including HP Enterprise's recent decision to replace CEO Meg Whitman, is a legitimate cause for uncertainty. Groupon has taken shareholders on a wild ride that doesn't appear to be nearing an end anytime soon.

Picture of a setting sun behind a city skyline with a highway full of cars below.

Image source: HP Enterprise.

Change isn't always good

After a bevy of grumblings from pundits to replace HP Enterprise CEO Meg Whitman, she has decided to step down on Feb. 1, 2018. Whitman's successor will be longtime Hewlett-Packard engineer Antonio Neri. The CEO swap is hardly the only change at the top. HP Enterprise has also hired new CIO Archie Deskus to manage the next sweeping IT restructuring.

Let's not forget HP Enterprise's decision earlier this year to sell off an entire division and large chunks of another. The result of its slew of ongoing changes has been a mere 7% rise in share price in 2017. Though HP Enterprise's financial results aren't terrible, the many questions surrounding its "new" direction, which comes on the heels of its existing "new" direction, are red flags.

Last quarter's $7.7 billion in revenue was a 4.6% increase compared to 2016, but HP Enterprise's fiscal year wasn't as positive. HP Enterprise generated revenue of $28.9 billion for the fiscal year, down 4.7%. Unfortunately, due to multiple restructurings, unit sales, and other changes, comparing the HP Enterprise of today with past results will be an ongoing challenge.

As an example, a big part of the 17% jump in operating expenses last quarter to $7.78 billion was the costs for separation, transformation, and acquisitions. Combined, the three expense line items totaled a whopping $643 million. For some perspective, last year those same line items totaled "just" $292 million. Change can be good, but HP Enterprise's continual efforts to find a winning formula make it a terrible stock for retirees looking for stability.

Picture of a pile of coupons.

Image source: Getty Images.

Anything you can do

An "economic moat" in the world of investing is used to describe the difficulty, or relative ease, with which competitors are able to offer solutions similar to what an existing provider can. Based on Groupon's growing number of competitors, including Ebates and RetailMeNot, to name but a couple, Groupon's economic moat is bordering on nonexistent.

Its competitors' aggressive discounting has pressured Groupon's top line, as last quarter's 9% drop in revenue to $634.5 million demonstrates. Groupon's answer to the lack of growth includes moving away from its lower-margin goods business to focus on its local unit. Another step Groupon is taking to jump-start sales is spending more on marketing.

Though sales, general, and administrative (SG&A) expenses were down 8%to $214 million, marketing costs rose 20% in the third quarter to $101.5 million. Despite paring SG&A expenses, the increase in marketing spend means total expenses were essentially flat year over year. Clearly, Groupon's efforts to "drive operating efficiency" haven't taken hold.

Net income was $3.8 million last quarter, but it also included a net $5.6 million gain from an asset sale; otherwise, it would have been another loss, just as it was a year ago. The end result was that per-share earnings, excluding one-time items, were $0.01 a share, the same as 2016's third quarter.

Groupon's topsy-turvy results and growing competition has meant a roller-coaster ride for shareholders. In the past 52 weeks, Groupon stock has traded as high as $5.99 and as low as $2.90 a share. The more than 50% swing in value in a year isn't ideal for any conservative investor, retired or not.

The continual highs and lows, lack of revenue growth, and little to no economic moat are why Groupon joins HP Enterprise as a terrible stock for retirees.

Tim Brugger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Groupon, Inc. Stock Quote
Groupon, Inc.
$10.98 (-4.93%) $0.57
Hewlett Packard Enterprise Company Stock Quote
Hewlett Packard Enterprise Company
$14.86 (-2.04%) $0.31

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.