If you're a deep-value investor, there are a couple of beaten-down stocks you'll want to pay close attention to now. These aren't the safest stocks to be holding, as there's a bit of uncertainty into how their futures may play out. But these stocks are trading at heavily discounted prices, and they aren't unknowns by any means in their respective industries, either.
The stocks I'm talking about are Walgreens Boots Alliance (WBA 1.20%) and iRobot (IRBT 7.90%). While these may not be suitable options for risk-averse investors, here's why you may want to consider these stocks if you're willing to be patient and can stomach some risk.
1. Walgreens Boots Alliance
Walgreens Boots Alliance has some excellent assets in its portfolio, namely its brand name. When you think of Walgreens, you'll probably think of your neighborhood pharmacy. That brand recognition helps it stand out from the rest, and perhaps draws consumers to go their local Walgreens rather than a big-box giant like Walmart.
The risk with Walgreens is that the business is struggling with profitability. It also cut its dividend this year and is in the midst of a big turnaround play, which involves launching 1,000 primary care clinics by 2027. It has partnered with primary care provider VillageMD to undertake this effort.
This turnaround strategy is a risky one, but the company's new CEO, Tim Wentworth, is what makes this an intriguing play. He came on in October, and by January he slashed the dividend, wasting little time in making a move that seemed obvious to many investors.
The payout wasn't sustainable -- certainly not if the company wanted to also focus on its long-term healthcare strategy. And that's also the reason why I wouldn't suggest relying on the dividend, as even at a reduced rate, the payout may not be safe.
If you're investing in Walgreens, the allure is that the stock is so beaten down that it's trading at a level it hasn't been at since the '90s. This truly could be a once-in-a-generation buying opportunity. But that's only if things go right and Wentworth is able to make the turnaround a success.
Many companies fail in these situations. And investors only need to look as far as the Rite Aid bankruptcy to see the risk here. Walgreens is banking on its trusted name and reputation to help be the go-to location for people with healthcare questions and pharmacy needs, rather than a Walmart or an Amazon.
Walgreens makes for a risky stock, as it has incurred a net loss in three of its last four quarters. If you're a contrarian investor willing to take on some risk and a believer in Wentworth, there could be some massive upside to Walgreens stock. But before you invest, you should carefully consider your financial position, as there's also the potential you could also incur significant losses if things don't turn out as planned for the healthcare company.
2. iRobot
iRobot also has ties to Amazon, but for different reasons. Rather than being a competitor, Amazon sought out to buy the robot vacuum maker. Unfortunately, due to regulatory obstacles in the European Union, the deal ultimately fell through this year, and iRobot's stock went tumbling down afterward.
Shares of iRobot haven't been trading this low since 2009 as its valuation hovers around book value, with a price-to-book multiple of 1.3. The deeply discounted stock is also trading at just 0.3 times its revenue.
The problem is that iRobot's business just isn't growing, and its losses are piling up. For the last three months of 2023, iRobot reported revenue totaling $307.5 million, which was down 14% from the same period a year earlier. And while the company's net loss did shrink from $84.1 million to a loss of just $63.6 million last quarter, a lack of profitability remains a big problem for the business.
The business says it is working with urgency to reduce costs and to "create a more sustainable business model," but as with Walgreens, it's a turnaround play that comes with some significant risks. iRobot has been reducing costs and laying off staff, but the business needs both a path to profitability and some growth catalysts to get investors bullish on the stock again.
With greater competition and more affordable options to choose from these days, the company and its Roombas have an uphill path from here on out. The stock's modest $270 million market value suggests that there could be a lot of room for the stock to rise in value -- Amazon was willing to pay $1.4 billion for the business. If iRobot can clean up its financials, then it could become a safer option for investors and perhaps attract another acquirer.
But as with Walgreens, this is a risky stock, and investors should be prepared for a lot of volatility.
