Shares of Intel and Plug Power have fallen more than 50% this year.
If you buy shares of a stock that has crashed and is trading at a multi-year low, you’re probably taking on a significant amount of risk. Whether it’s a troubling future outlook, poor fundamentals, or just a completely broken business, there can be many reasons for a stock to drop sharply. The bear market can be contagious, leading to a rapid free fall for some stocks.
Two stocks that are particularly worrying this year are Intel (INTC -2.29%) And Plug-in power supply (PLUG -6.28%)Their valuations have plummeted amid worrying financial results. Could these stocks be a bargain 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 have fallen 60 percent since January, despite it being a strong year for the market. S&P500 is up 18% this year. The technology stock is trading at levels not seen since 2012.
Bargain hunters may see an opportunity here, but it comes with a lot of risks. Investors have been selling Intel shares as doubts have grown about the company’s ability to be competitive and profitable in the chip market. Not only has Intel’s profit been heading in the wrong direction in recent years, but its cash flow has also deteriorated.
INTC Net Income (Quarterly) data by YCharts
The situation became so worrying that management announced in August that it would suspend the dividend. And it is not just about cost cutting, but also about Intel’s overall competitiveness. The Japanese company SoftBank planned to produce an artificial intelligence chip together with Intel, but ultimately decided against it because Intel could not meet the requirements.
Investors who buy Intel stock are essentially betting and hoping that the company can turn things around. But that’s no easy task, and while the odds of winning if it succeeds can be high, the risk is just as high. Investors may be better off waiting on the stock rather than buying it, as Intel could still have more trouble ahead.
2. Power adapter
Another struggling stock that contrarian investors may want to take a chance on right now is hydrogen fuel cell maker Plug Power. It too has fallen to multi-year lows, down over 50%. You have to go back to 2019 to see the last time this once-hot meme stock traded at lower levels than it does now.
Investing in green energy stocks can be a great idea in the long run, but it also comes with risks. Not every company that deals with green energy solutions will survive, and it is also questionable what type of energy consumers will prefer in the long term. Many people are not convinced about hydrogen in particular, and some experts believe it could be decades before it can be an affordable and practical alternative to oil.
This 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 the company’s liquidity.
Over the past 12 months, Plug Power has incurred operating losses of more than $1.1 billion, and during that time it has also burned through $904 million in cash from day-to-day operations. That’s especially problematic for a company that had just $62.4 million in cash and cash equivalents on its books at the end of June.
Plug Power may not be able to stay afloat without having to continually raise money through equity offerings. For investors, the risk of dilution is significant, and 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.
David Jagielski does not own 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.
