After years of big gains in the market, two things have happened. First, most folks 401k is looking pretty good right now. Second, the market is expensive, mainly the S&P 500. That’s why I have publicly said several times that the best policy to start 2017 is to have a lot of cash on the sidelines, and to downsize your pricey winners.
However, one can’t deny the fact that stock laggards are cheap, like dirt cheap. Many of the stocks that fell significantly in 2016 were well deserved, but several of those losses are overextended. As a result, if you are like me with cash to spare, and have had several great years, it might be a good idea to buy a couple of the following stocks.
Granted, don’t put 50% of your portfolio in these stocks. Hell, they are risky, and there is a reason they are laggards. However, 5-10% of your portfolio allocated to stocks that everyone else is selling, might not be a bad policy.
This series will look at 14 laggards, and will be split into two articles. This is Part 1, and will explore Sears Holdings Corp (NASDAQ:SHLD), Noodles & Co (NASDAQ:NDLS), Celldex Therapeutics, Inc (NASDAQ:CLDX), Hanesbrands Inc (NYSE:HBI), CPI Card Group Inc (NASDAQ:PMTS), GNC Holdings Inc (NYSE:GNC), and Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN).
Stock laggards to buy: SHLD -55%
Sears Holdings Corp (NASDAQ:SHLD) is the classic example of a retailer that never quite adapted to the times, failing to realize e-commerce as more than a niche. It has since become a company that can’t get out of its own way, with annual revenue losses that never seem to end and debt that is piling up. In 2016, whispers of the next Circuit City turned to screams. As a result, SHLD stock fell 55%.
However, SHLD had a good end to the year. The company secured a $200 million loan that can increase to $500 million. Yes, the company needs triple that amount to operate comfortably throughout 2017. With over $20 billion in annual revenue, companies of its size typically find the means to adjust their capital structure and create liquidity.
SHLD is right in the middle of a transformation that involves closing unprofitable stores and directing customers to its Shop Your Way digital platform. If SHLD can buy itself another year, which I expect, then there is no reason the company can’t close enough stores to let the profitable ones shine in 2018. Given that SHLD supports a valuation of just $1 billion, improved margins and slightly higher sentiment could do wonders for SHLD stock.