The broader markets are near-record highs. The Dow Jones and S&P 500 indexes have received another temporary boost by the recent federal rate cut. However, there are several stocks that are trading at 52-week lows and might move lower as we head into 2020.
Here we look at two such stocks that have underperformed the market in 2019. They are trading at 52-week lows but are still vulnerable at the current price.
Indigo Books & Music
Shares of Indigo Books & Music (TSX:IDG) are trading at $4.4. The stock has fallen 28% last month and is trading at record lows. IDG investors have lost close to 80% in market value since February 2018.
IDG is Canada’s largest book and specialty toy retailer with a retail presence in the United States as well. The company has been plagued with slowing sales and falling profit margins. It has missed earnings estimates in each of the last four quarters as well, driving the stock to all-time lows. The shift to e-commerce has severely hurt Indigo’s retail sales.
Indigo sales are expected to fall from $1.05 billion in fiscal 2019 (ended in March) to $993.7 million in 2020 and $989 million in 2021. While earnings are estimated to rise by 48.9% in 2020 and 52.2% in 2021, the company is still posting an adjusted loss.
Analysts estimate earnings will improve from -$1.35 in 2019 to -$0.33 in 2021. Indigo has had to reduce promotional spending drastically to cut costs, which in turn has had a huge impact on the top line.
I had identified Indigo as a risky investment last month, and the stock has continued to disappoint investors. Analysts are also revising the target price lower. They have an average target price of $9 for IDG, which is 125% above the current trading price.
In September, IDG’s target price stood at $15, which means estimates have fallen by 40% in just over a month.
Maple Leaf Foods
Shares of Maple Leaf Foods (TSX:MFI) are trading at $23.13. The stock has fallen 21% in the last three trading days and is now 36% below its 52-week high. The recent pullback has meant that MFI has wiped out major gains and is now up just 22% since November 2014.
Though MFI’s position is not as precarious as Indigo’s, there are major near-term risks for investors. We have seen that MFI posted sales of $995.8 million and earnings of $0.03 in the September quarter. While MFI beat revenue estimates of $982.9 million, its earnings came in lower by a considerable 90% compared to estimates of $0.31.
MFI is a player in the consumer protein segment. While it has heavily focused on processed meat and hog production, the company is now eyeing the high-growth plant-based protein business á la Beyond Meat. While sales in the plant protein business rose 30% in Q3, it still accounts for less than 5% of total sales.
Maple Leaf Foods claimed the massive decline in earnings was driven by China’s ban on Canadian pork products. The African Swine Fever virus is sweeping across Southeast Asia, resulting in a lower supply of hog meat. The demand-supply gap will extend into 2020 due to China’s ban.
Though Maple Leaf Foods will try to diversify its revenue base, investors can expect the profit margins to decline over the next two quarters. Analysts covering MFI remain optimistic and have a 12-month average target price of $39, which is 70% above the current trading price.
