Even with the seemingly rising potential for a soft landing, the risk of consumers being pressured by higher prices makes 2024 a time to focus on the thoroughbred stocks with clear trajectories.
Beyond Meat(NASDAQ: BYND) has continually struggled with profitability, and more recently has seen declining overall sales led by the United States market. Altria(NYSE: MO) is the classic example of a company trapped between a rock and hard place. Tobacco isn't as popular as it used to be, and the company's constant attempts to derive better earnings out of weaker overall sales is a troubling notion for long term focused investors. Here are the reasons why investors should steer clear of these stocks in 2024.
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Who doesn't love a ribeye?
Ahead of Beyond Meat's latest earnings results on February 27th, we're looking at a company with a lot to prove. Since its big rise post-IPO, the primary problem for the plant-based food business had been fairly significant annual losses. In recent years, declining revenues have been added to the equation. For a growth stock like Beyond Meat, that's a real problem.
For 2022, net revenues declined 9.8% year-over-year to $418.9 million, with net losses of $366 million. Through the first nine months of 2023, net revenues were down 20.4% to $269.7 million. The main source of the problem appears to be the U.S. market, where net revenues declined 34.3% to $163.14 million, only partially offset by growth internationally.
Beyond Meat's sales lag begs the question, how much demand is really there for their products? To attempt to drive demand, the company has offered discounts on its products, with Beyond Meat executives saying "the percentage of people in the U.S. who believe plant-based meats are healthy is likely to have dropped further this year."
The third quarter report pointed to continued cost cutting measures. That might be enough were the company simply experiencing growing pains and working to learn to manage its costs, but Beyond Meat isn't growing. Its revenues are in decline.
The lack of patience from investors is prevalent in the 56% drop in the stock price over the last twelve months. Unless there's a surprise shift in narrative, the current bearish sentiment seems likely to continue.This is a growth stock, and has to figure out its sluggish sales problem. This makes the stock a tough sell for new investors, even after the colossal drop that shares have experienced over the last two years.
Stay away from cigarettes
Altria(NYSE: MO) is simply in a tough spot. Tobacco products are in a state of flux, where public opinion is murky at best. The problem is evident in the company's rather flat 2023 sales.
Full year 2023 revenue declines of 2.4% aren't exactly a thrilling proposition for investors. This isn't a one year event, either. Altria's revenues have been stagnant since 2019. In that year, the company reported revenues of $25.11 billion, and finished 2023 with full year revenues of $24.48 billion.
Advocates have pointed to the company's ability to keep squeezing higher operating income, and net profits out of that revenue. That narrative continued in 2023, with net earnings increasing 41% to $8.13 billion, but operating income declined by 3.1% year over year to $11.55 billion.
The simple fact here is that Altria is still heavily reliant on the sale of tobacco products, namely Marlboro cigarettes. Smokables represented $21.76 billion of the company's 2023 net revenues, which is a problem when you consider the public pressure on tobacco in America.
At the end of the day, is it better to put one's investment dollars into the past, or into the future? It's easy to be tempted by the nearly 10% dividend and value of the share price, but Altria is heavily reliant on an industry that is less and less popular. The proof is in their declining Marlboro shipment volumes, which declined 8.8% year over year in 2023. Total shipment volumes for smokeable products declined 9.6% year over year. and Altria hasn't shown enough to prove they're successfully moving away from reliance on cigarettes.
While e-cigarettes and the like certainly offer an opportunity for Altria to attempt to diversify away from smoked tobacco, it's hard to look at the stock as a great bet, when it has had a five year decline of 18% compared to an S&P 500 return of 82% gains over the same time frame.
Eyes on the prize
The latest CPI report shows inflation is still a thorn in the consumer's side, and with markets near all time highs, this doesn't seem like a time to take chances. Stick to companies creating consistent, solid sales growth, and that have the potential to translate that growth into meaningful earnings. Investing in industries with murky paths forward is not the right approach in 2024 for most investors.
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David Butler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Beyond Meat. The Motley Fool has a disclosure policy.
