Stocks that are crashing in value can sometimes make for good contrarian investments -- provided that there's a reason to expect a turnaround. But in some situations, investors are better off just avoiding businesses that are in trouble and whose valuations may only end up going lower.
Three stocks that are down big in recent years and that still aren't worth buying today are Biogen (BIIB 1.78%), Snap (SNAP 1.93%), and 3M (MMM +1.25%). Here's why.
1. Biogen
Shares of healthcare company Biogen are down 5% this year -- and over a longer stretch, things aren't much better. In five years, the stock has fallen by 20%. The problem is that Biogen's business simply isn't growing. From more than $14 billion in 2019 to just over $10 billion in 2022, the top line is struggling badly. The company's top-selling multiple sclerosis drug Tecfidera has lost exclusivity, and competition is chipping away at its market share.
NASDAQ: BIIB
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One thing that has lifted the stock and given investors some hope for the future is the approval of Alzheimer's treatment Leqembi, which Biogen has been developing with Eisai. Sales, however, may not start to pick up until next year due to logistical issues. Analysts believe it could generate up to $10 billion in annual revenue at its peak, but that may not happen until after 2030. And that won't exactly be a huge windfall for Biogen, either. It will only share in the profits on the drug with Eisai.
While there is growth ahead for Biogen, it may still be years before it makes a noticeable improvement in its financials. The business needs more growth catalysts, and unfortunately, it has often disappointed investors. Aduhelm initially gained accelerated approval for Alzheimer's, but the company ultimately pulled the plug on the drug as health officials weren't convinced of its effectiveness.
Earlier this year, the U.S. Food and Drug Administration approved Zurzuvae (a treatment Biogen has been working on with Sage Therapeutics) for post-partum depression but rejected it as a treatment for major depressive disorder, which would have been a much bigger market opportunity.
Biogen's business seems to be moving forward, but the progress just isn't enough. Although it may seem cheap, trading at only 14 times earnings, that multiple could worsen over time should its financials deteriorate further.
2. Snap
Snap is a popular social media platform for teens and young adults, but that hasn't translated into success for the business. Down a mammoth 66% in three years, the tech stock faces lots of competition, and a weak ad market hasn't been helping. Through the first half of the year, sales of $2.1 billion are down 5%, and the company's net loss of $706 million is only 10% better than the $782 million loss it incurred in the same period last year.
NYSE: SNAP
Key Data Points
What's concerning is that even though its daily active users grew by 14% to 397 million as of the end of June, that isn't translating into revenue growth. Even the launch of Snapchat+, which has over 4 million paid subscribers, hasn't been enough to stimulate some growth in the business.
The company has a long way to go to dig itself out of the deep losses it's sustaining right now, and I'm not optimistic it will be able to do so. Investors are better off avoiding this stock until it can prove that it has a path to profitability.
3. 3M
In just three years, 3M has lost nearly half of its value. Normally a stable stock to invest in and even a great dividend investment to own, 3M's brand has taken a beating in recent years. The company has been involved in some significant lawsuits. One involves "forever" chemicals, and another concerns faulty earplugs, which more than 250,000 military service members claim were ineffective.
Key Data Points
The situation is so bad that 3M may need to take on $30 billion in debt just to manage all these lawsuits. Taking on so much debt is concerning for a growth company. Taking on that much debt just to settle legal obligations is an even worse reason to do so.
Equally important is the damage to the brand. Whether people will continue to trust the company's products is a big question that investors shouldn't overlook. This year, sales of $16.4 billion are down 7% from a year ago. Revenue from every one of its major segments is down as the business is struggling on multiple fronts.
At just 9 times its estimated future earnings, 3M's stock looks cheap but is a potential value trap. Investors should resist the temptation to buy shares of this business, as things may get worse, not better, for 3M in the future.
