3 Stocks That Are Stuck in the Mud

by Alyssa Oursler | August 23, 2012 9:40 am

Stock headlines rarely seem to land in the middle. Instead, they’re seemingly riding the pendulum, as Wall Street cheers good reports from names like Apple (NASDAQ:AAPL[1]) and Wal-Mart (NYSE:WMT[2]) while scoffing at the likes of Dell (NASDAQ:DELL[3]) and Best Buy (NYSE:BBY[4]).

But some names tend to just slip through the cracks, as their fundamentals and performance aren’t good enough — or bad enough — to matter much at all.

And while analysts and financial media members might not be pounding the gavel, these middle-of-the-road stocks still don’t offer much to investors and aren’t going anywhere fast — and thus, investors should be just as wary of them as companies in full meltdown. Here are three companies that are stuck in the mud and not worth your time:

Hillshire Brands

Hillshire Brands (NYSE:HSH[5]), a food company focused primarily on meat production, doesn’t have much going for it.

For one, the numbers aren’t appealing. Hillshire Brands trades at 17 times earnings — while not jarring by broader-market standards, that’s far more expensive than competitors like Tyson Foods (NYSE:TSN[6]) and ConAgra (NYSE:CAG[7]), which have P/E’s of around 10, and it’s even pricier than diversified Kraft (NASDAQ:KFT[8]) and its 15 P/E.

And what you’re buying isn’t what you get. The company is expected to grow just 7% annually the next five years — just half of the S&P 500 average. Plus, while Hillshire has steadily increased dividend payments since 1946, it still yields a modest 1.8% — sure, it’s income, but if you want slow-growth yielders, there’s far more attractive prospects in telecom and utilities.

Really pushing matters is the Midwest drought. Food prices are already on the rise[9], and that trend is expected to continue into 2013. Plus, meat is expected to be hit the hardest[10], as corn and soybeans are used to feed livestock. That doesn’t bode well for Hillshire — the leftover meats company following the trimming-down of Sara Lee, which included the separation of its international coffee & tea business, the sale of its North American foodservice coffee and hot beverage division to J.M. Smucker (NYSE:SJM[11]) and the sale of its refrigerated dough business to Ralcorp Holdings (NYSE:RAH[12]).

Investors can see the writing on the wall, too, and have written off HSH to the tune of 14% when it converted from Sara Lee earlier this summer.

Activision Blizzard

Activision Blizzard (NASDAQ:ATVI[13]) still might have many devoted World of Warcraft and Call of Duty followers, but investors haven’t been as loyal. Earnings and revenues have fallen in the past two quarters, and ATVI shares have followed suit, dropping 5% since January.

ATVI’s five-year growth isn’t horrible, at just under 10% — though that’s still slightly under the S&P 500 average projection, and worse, half the growth average for the industry.

But more important, the traditional gaming industry is a mess right now. The current generation of consoles is practically ancient, and gamers and developers alike are hoping for the next big wave to boost lagging sales. However, Microsoft (NASDAQ:MSFT[14]) and Sony (NYSE:SNE[15]) haven’t announced next-gen consoles yet, and while Nintendo (PINK:NTDOY[16]) is set to release the WiiU this fall, optimism about its success is tenuous.

Fellow game maker Electronic Arts (NASDAQ:EA[17]), which also boasts some social titles, has lost 34% year-to-date, and retailer GameStop (NYSE:GME[18]) has shed more than 20%. The latter has been pegged by InvestorPlace Editor Jeff Reeves as a company that will never turn around[19]. There’s also a rumor mill of buyout talks[20], but nothing has seemed to stick.

Should Activision hang around, its 1.5% dividend isn’t exactly going to carry you through the long haul. And despite all that mess, ATVI still trades for an unattractive 17 times earnings.

Adidas

German athletic apparel company Adidas (PINK:ADDYY[21]) might be best known for, well, competing in the same field as Nike (NYSE:NKE[22]).

Unlike the previously mentioned companies, ADDYY has had a strong 2012, up roughly 20% in the past year, though most of that came in January, with the stock mostly trading flat since then.

But while Adidas remains one of the premier apparel names in soccer, it’s having difficulties in other areas. This year, Nike stole the lucrative NFL apparel deal[23] from Adidas’ Reebok brand — which brought Adidas roughly $350 million a year in sales — and technology-driven Under Armour (NYSE:UA[24]) is making a name for itself in the overall space.

ADDYY’s forward earnings aren’t bad at 14, and better than Nike’s 16. But the fact that Nike is overpriced right now shouldn’t make Adidas any more appealing, considering ADDYY is only expected to grow 6% annually for the next five years while Nike is forecast to grow 13%.

Admittedly, Adidas also isn’t going to completely fade away, but if investors don’t expect much on the growth side, they need a reason to stick around — and an inconsistent annual dividend that averages around 1% isn’t going to cut it.

As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.

Endnotes:
  1. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  2. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  3. DELL: http://studio-5.financialcontent.com/investplace/quote?Symbol=DELL
  4. BBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BBY
  5. HSH: http://studio-5.financialcontent.com/investplace/quote?Symbol=HSH
  6. TSN: http://studio-5.financialcontent.com/investplace/quote?Symbol=TSN
  7. CAG: http://studio-5.financialcontent.com/investplace/quote?Symbol=CAG
  8. KFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=KFT
  9. already on the rise: http://investorplace.com/2012/08/5-ways-the-drought-could-dry-up-you-wallet/
  10. meat is expected to be hit the hardest: http://investorplace.com/2012/08/food-crisis-before-you-jump-to-conclusions/
  11. SJM: http://studio-5.financialcontent.com/investplace/quote?Symbol=SJM
  12. RAH: http://studio-5.financialcontent.com/investplace/quote?Symbol=RAH
  13. ATVI: http://studio-5.financialcontent.com/investplace/quote?Symbol=ATVI
  14. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  15. SNE: http://studio-5.financialcontent.com/investplace/quote?Symbol=SNE
  16. NTDOY: http://studio-5.financialcontent.com/investplace/quote?Symbol=NTDOY
  17. EA: http://studio-5.financialcontent.com/investplace/quote?Symbol=EA
  18. GME: http://studio-5.financialcontent.com/investplace/quote?Symbol=GME
  19. will never turn around: http://investorplace.com/2012/08/3-stocks-that-will-never-turn-around/
  20. rumor mill of buyout talks: http://investorplace.com/2012/08/electronic-arts-exploring-a-sale/
  21. ADDYY: http://studio-5.financialcontent.com/investplace/quote?Symbol=ADDYY
  22. NKE: http://studio-5.financialcontent.com/investplace/quote?Symbol=NKE
  23. stole the lucrative NFL apparel deal: http://investorplace.com/2012/08/3-stocks-to-grab-by-the-facemask-nke-ua-fl/
  24. UA: http://studio-5.financialcontent.com/investplace/quote?Symbol=UA

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