A recovery stock for risk takers and one that's unlikely to disappoint
1st March 2023 10:21
by Rodney Hobson from interactive investor
After urging investors to sell this stock, the price has fallen significantly and now looks attractive for risk takers. Our overseas investing expert also backs a solid boring company that won't give you sleepless nights.
The collapse in the share price of Beyond Meat Inc (NASDAQ:BYND) was quite remarkable but the company that once seemed to have so much promise may be turning the corner at last.
The maker of plant-based meat (if that is not a contradiction in terms) has finally got costs under control. It expects operating expenses to fall by 22% this year compared with a 9% rise in 2022. Drastic measures include sacking 200 workers, tightening up its supply chain, renegotiating contracts and speeding up automation in its manufacturing.
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On the downside, it still has to cope with stagnating demand for substitute meat while tackling rising costs for raw materials, distribution and energy. Life will continue to be tough but at least the company seems to be getting its act together.
It needs to. Revenue fell 9.8% to $418.9 million last year and the net loss doubled to $366.1 million. Rather alarmingly, revenue in the final quarter slumped 20.6% compared with the same quarter a year earlier. The only consolation was that analysts had expected even worse.
Chief executive Ethan Brown is promising to improve margins as well as reduce operating expenses and inventory levels, and he reckons that Beyond Meat will start to generate cash in the second half of this year. There is a heavy burden on his shoulders, but he may well be the man for the job. If he fails, it is hard to see anyone else succeeding.
The shares hit $235 in the middle of 2019 but they have been as low as $15 in recent months. However, they started to bottom out in the second half of 2022 and could now be on the rise again. This is not a share for those who seek a dividend as repeated losses have delayed any prospect of a payout for some time.
Source: interactive investor. Past performance is not a guide to future performance.
If vegans have not grown in numbers as quickly as many people expected, the elderly certainly are doing, so medical insurance and healthcare provider UnitedHealth Group Inc (NYSE:UNH) will have a guaranteed expanding demand for its services.
Having upped its guidance for 2022 in November, UnitedHealth has kept its word after a great final quarter that saw revenue up 12% to $73.7 billion and earnings 25% higher at $6.9 billion. Revenue for the full year gained 13% to $324.2 billion with earnings up 19% at $6.9 billion.
The company expects further growth this year and it looks likely to deliver again.
A great deal of good news has been factored into the share price since it hit a low of $206 in March 2020 at the height of the pandemic, but the stock has come off the boil after peaking around $550 on three occasions late last year.
Even so, at $476 the price/earnings (PE) ratio is a little on the high side at 22.8, while the yield is on the low side at 1.3%. However, these statistics are by no means off-putting for such a solid and profitable company.
Source: interactive investor. Past performance is not a guide to future performance.
Hobson’s choice: I warned investors more than a year ago to sell Beyond Meat when the fall took the shares back below $90 and repeated that advice at $47 last March. At $18 this is worth considering as a recovery stock but only those with an appetite for risk should buy. Those who do so should monitor the stock carefully for any signs that the bad times have not gone away.
Buy UnitedHealth if you like solid boring companies that are unlikely to produce hefty gains but are equally unlikely to disappoint. The downside is probably limited to $472, while $500 should be possible in the near term.
Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.
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