Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Are These 2 Beaten-Down Stocks Now Buys?

By Eric Volkman - Sep 26, 2019 at 3:49PM

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

It's getting hot in Beyond Meat's kitchen, while Lannett takes a big blast of bearishness.

It's nice when a stock market recovers, isn't it?

Wednesday was one of those happy times as investors reversed the previous day's gloomy performance by trading up many key stocks on the indexes. Two companies that got left behind, however, were Beyond Meat ( BYND -4.08% ) and Lannett ( LCI 4.71% ). Here's why.

Impossible Burger at a retail store.

The Impossible Burger, a rival to Beyond Meat products. Image source: Impossible Foods.

Beyond Meat

Beyond Meat is having an up-and-down-week for sure. The stock was rocked by a quite bearish analyst note released on Monday, and now there's news of a rival making big strides in the market.

The rival is privately held Impossible Foods, which is set for a big roll-out of its Impossible Burger in select East Coast grocery stores on Thursday. This comes a fast week after the product -- which had only been available in restaurants previously -- made its debut in 27 Gelson's supermarkets in California.

This doesn't match the retail presence of Beyond Meat, whose wares are available in popular supermarket chains such as Kroger, and Amazon.com's Whole Foods, and Target, plus restaurants such as McDonald's, which just signed on to bring the Beyond Meat burger to 28 of its Canadian locations in a pilot project. But the move shows Impossible Foods is making a determined play at taking some share.

This market is rapidly getting crowded. Nestle's Sweet Earth Brand announced on Wednesday it's launching a pair of nonmeat products, the Awesome Burger and Awesome Grounds, the latter of which mimics a package of ground beef. Both, like Beyond Meat's Beyond Burger, are made from pea protein. Nestle says the Awesomes will be available at various retailers starting this week.

Beyond Meat was a wildly popular stock following its May IPO. But it's had a head start over its peers, and now they're catching up quickly. Although the stock has recovered (and then some) following the McDonald's news on Thursday, it's been stumbling of late. It's going to take more than the Golden Arches for Beyond Meat to outpace its rivals.

Lannett

Beyond Meat's slip was nothing compared to that of pharma stock Lannett, which saw its price tumble by more than 17% on Wednesday.

At issue is the company's flotation of a convertible debt issue of up to $86.25 million. This debt is comparatively expensive with its 4.5% annual interest rate, paid semiannually.

Additionally, it's a complicated issue that gets into technical financial minutiae such as capped calls, and its conversion rate is low ($15.29 per share, which isn't much higher than Tuesday's closing price). Part of the complication with the bonds is that they contain anti-share dilution measures, but it seems investors still fear that their existing stakes will be watered down with newly converted stock.

The wallop to the stock price kills the momentum of the shares, which had been on quite a run since Lannett unveiled Q4 of 2019 results last month. The company's headline financials and 2020 guidance were better than analysts expected, even though the quarter's revenue and net income were significantly lower on a year-over-year basis (due to the loss of a big supply deal).

Lannett has been on a good path since the vaporization of said deal and has made admirable strides in broadening its product portfolio. Investors are certainly right to fear dilution, but a 17% sell-off feels like an overreaction to me -- I don't think the convertibles will have that bad an effect on the stock, and on a fundamental basis, the company is performing. Lannett is worthy of consideration, then, for stock bargain hunters.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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

Lannett Company, Inc. Stock Quote
Lannett Company, Inc.
LCI
$1.78 (4.71%) $0.08
Beyond Meat Stock Quote
Beyond Meat
BYND
$64.61 (-4.08%) $-2.75

*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 service.

Stock Advisor Returns
640%
 
S&P 500 Returns
139%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/04/2021.

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

Our Most Popular Articles

Premium Investing Services

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