If you're a bargain hunter and want to buy stocks that are dirt cheap, you're likely going to need to take on some risk. Struggling stocks are usually cheap for a reason. The key thing is to evaluate what that risk is, the likelihood that it can recover, and how long a turnaround may take.
Three stocks that are undesirable these days and have fallen to around their five-year lows are big names Lululemon Athletica (LULU +2.54%), Target (TGT 0.56%), and Kimberly-Clark (KMB 0.73%). Here's what you need to know about them before deciding whether or not to buckle down and take a chance on these stocks.
Image source: Getty Images.
1. Lululemon Athletica
Tariffs and a slowdown in discretionary spending are the big worries about Lululemon's stock these days. Although the apparel company has a solid brand that is popular with young people, when prices are too high and economic conditions too dire, sales are inevitably going to suffer.
This year, Lululemon's stock has plummeted an incredible 58%. The last time it was around these levels was back in March 2020. It's now trading at a price-to-earnings (P/E) multiple of 11, which seems cheap. But the problem is if the business' financials deteriorate, that multiple will climb higher, thus, that modest valuation is of little comfort these days.
NASDAQ: LULU
Key Data Points
The company's comparable sales growth was just 1% in its most recent quarter, which ended on Aug. 3. I think there's potential for Lululemon to recover but a lot is going to depend on the strength of the economy. Its brand power could be what helps it bounce back, but I would expect that it may take at least a year or two before it happens. Lululemon is down big this year, but the sell-off may be a bit overblown.
2. Target
Big-box retailer Target is another company that's not doing well due to tough economic conditions. Its business relies heavily on discretionary purchases, and that hasn't been a good recipe for success of late. The stock is down 33% this year, and the last time it was at these levels was also back in 2020.
When it last reported earnings in August, its net sales of $25.2 billion were down around 1%, despite the company seeing improvements in sales and traffic trends. The company has a new CEO, Michael Fiddelke, taking over in February. And he's wasting no time in trying to fix things up as he recently sent out a memo announcing 1,800 corporate layoffs in the company's largest restructuring effort in a decade.
NYSE: TGT
Key Data Points
Target's stock trades at 10 times earnings so there is a good margin of safety that comes with it. I believe it may be able to rebound within a year or two, especially with its new CEO hitting the ground running and already working on improving profitability.
3. Kimberly-Clark
Normally a safe blue chip stock, shares of Kimberly-Clark have tumbled more than 20% this year. They haven't been priced this low since 2018. The consumer goods company, known for brands such as Huggies and Cottonelle, wasn't doing all that badly until recently, when it announced plans to acquire Kenvue for a whopping $48.7 billion.
Johnson & Johnson spun off Kenvue back in 2023, in an effort to get leaner, focus on growth, and off-load some of the headaches from its consumer business, including some liability relating to talc-based products (Johnson & Johnson would remain on the hook for liabilities related to the U.S. and Canada, but Kenvue would have to take on litigation for other markets). Now, Kimberly-Clark looks like it's willing to take on those challenges, including Tylenol, which Kenvue owns and which has recently come under controversy as President Donald Trump has suggested that there may be a potential link between it and autism.
NASDAQ: KMB
Key Data Points
This acquisition is a perplexing move for Kimberly-Clark, to take on all these challenges for a business such as Kenvue that's struggling to generate any growth of its own. That's why I think Kimberly-Clark may be the worst stock on this list, and it may have the toughest path to turning things around. At 17 times its trailing earnings, it's also the most expensive. Even though the stock's losses are relatively mild compared to the others on this list, they could get a lot worse. I would avoid this stock at all costs.
