If you're buying shares of a beaten-down stock that's trading at multiyear lows, odds are, you're going to need to take on some significant risk. Whether it's a troubling outlook for the future, poor fundamentals, or just an outright broken business, there can be many reasons for a stock to go on a steep decline. The bearishness can be contagious and result in a quick free fall for some stocks.
Two particularly concerning stocks this year are Intel (NASDAQ: INTC) and Plug Power (NASDAQ: PLUG). Their valuations have been nosediving amid concerning financial results. Could these stocks be steals at their current prices, or are they too risky to even consider buying right now?
1. Intel
It has been a disastrous year for chipmaker Intel. Its shares are down 60% since January during what has been a strong year for the market -- the S&P 500 has risen 18% this year. The tech stock is trading at levels it hasn't been at since 2012.
Bargain hunters may see an opportunity here, but it's one that comes with plenty of risk. Investors have been selling off shares of Intel as question marks have grown about the company's ability to compete in the chip market and do so profitably. Not only has Intel's bottom line been going in the wrong direction in recent years, but its cash flow has also been deteriorating.
The situation became so concerning that management announced in August that it was suspending its dividend. And it's not just about cutting costs, it's also the overall competitiveness of Intel that's a concern. Japanese company SoftBank was planning to produce an artificial intelligence chip with Intel but ultimately decided against doing so as Intel failed to meet its requirements.
Investors who buy shares of Intel are effectively betting, and hoping, that the business can turn things around. But it's a task that won't be easy and while the upside may be high if it's successful, so too is the risk. Investors may be better off taking a wait-and-see approach with the stock rather than buying it as there could be more struggles ahead for Intel.
2. Plug Power
Another struggling stock contrarian investors may be tempted to take a chance on right now is hydrogen fuel cell company Plug Power. Down more than 50%, it too has sunk to multiyear lows. You have to go back to 2019 for the last time this once-hot meme stock was trading at lower levels than it is now.
Investing in green energy stocks can seem like a great long-term plan but it comes with risks. Not every business involved in green energy solutions will survive, and it's also debatable which type of energy consumers will prefer in the long run. Many people aren't convinced about hydrogen in particular, with some experts believing it could be decades before it can be an affordable and practical alternative to oil.
That creates a troubling situation for Plug Power, as it clouds the company's long-term growth prospects. And in the short term, there are serious concerns about its liquidity.
In the trailing 12 months, Plug Power incurred operating losses of more than $1.1 billion. During that time, the company has also used up $904 million in cash from its day-to-day operating activities. That is especially problematic for a business that reported just $62.4 million in cash and cash equivalents on its books as of the end of June.
Plug Power may not be able to stay afloat without having to continuously raise cash through stock offerings. For investors, the threat of dilution is significant and when combined with a questionable future, it's clear that this stock is not a suitable option for the vast majority of portfolios. There are much safer and better growth stocks to buy.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
2 Struggling Stocks That Haven't Been This Cheap in 5 Years. Are They Too Risky to Buy? was originally published by The Motley Fool