Purchasing stocks when their value is low is advisable, as the well-known investing advice suggests: “Buy low, sell high.” Yet, it’s important to note that not all companies experiencing market declines are worth investing in. It remains crucial to distinguish between strong and weak performers. Despite the overall positive performance of the stock market throughout the year, there are still plenty of undervalued stocks available for selection.
Let’s talk about three of them: One that appears appealing is CVS Health ( CVS 0.97% ) , and two that do not justify the investment from hard-working investors are Chegg ( CHGG -1.43% ) and fuboTV ( FUBO 1.59% ) . Here’s why.
The argument in favor of CVS Health
Large healthcare corporation CVS Health has encountered several challenges in the last couple of years. Here are two key issues.
Sales of COVID-19 tests and other products related to the coronavirus have significantly decreased. Additionally, the Medicare Advantage division of CVS Health is seeing more activity than expected, resulting in higher costs than originally forecasted. The company’s financial performance has been lackluster, with multiple downward revisions to its guidance, including during the second quarter.
CVS Health has revised its predicted adjusted earnings per share (EPS) for fiscal year 2024 to be between $6.40 and $6.65, compared to the previous estimate of at least $7. The company’s revenue for the quarter rose by 2.6% year over year to reach $91.2 billion.
Investors should still think about investing in CVS’ stocks despite the current challenges. Even though these challenges are significant, they are expected to be temporary. It is unlikely that CVS will continue to experience negative impacts from the pandemic on its financial performance in the long term, five years down the line. Eventually, the situation will improve for that aspect of the business. The outlook is similar for its Medicare Advantage division.
At the same time, CVS Health has several strategies for sustained expansion and a strong edge against competitors. The company is involved in various aspects of patients’ healthcare experience, covering everything from primary medical services to medication and insurance. As the global population continues to age, the need for these healthcare solutions is expected to rise. CVS Health is well-positioned with its reputable brand as a leading pharmacy chain in the United States, earning the trust of patients.
In conclusion, CVS Health is a reliable stock that pays dividends Although the company is currently not performing well, buying its stocks at a low price could turn out to be a smart decision in a decade.
Arguments opposing Chegg
Chegg operates an internet-based platform that provides a range of services aimed at assisting students in achieving academic success. Their subscription service offers high-quality solutions to homework and textbook challenges in various subjects. Nevertheless, the company faces the threat of becoming outdated as a result of the emergence of AI chatbots such as ChatGPT. These innovative applications have the ability to respond to inquiries, including complex ones (GPT-4 even passed the bar exam), and generate elaborate essays rapidly.
Instead of paying for Chegg’s subscription services, students can choose ChatGPT for similar assistance and additional benefits. Chegg is facing challenges as its popularity has declined, leading to poor financial performance. In the second quarter, Chegg’s revenue dropped by 11% to $163.1 million compared to the previous year, and its subscriber base decreased by 9% to 4.4 million.
The company’s net income of $24.6 million in the second quarter of 2023 was transformed into a net loss of $616.9 million.
Chegg is aiming to stage a comeback. tech company Chegg is creating a platform that combines advanced AI technology with human experts to provide comprehensive support to students. This new platform aims to assist students in reaching their objectives, going beyond just academic assistance. Additionally, Chegg plans to reduce expenses by reducing its workforce by 23%.
The success of these efforts remains uncertain, and the stock appears too risky at the moment. If Chegg demonstrates its ability to thrive in the AI-driven landscape, it might be a stock worth exploring. However, until then, it is advisable for investors to avoid it.
Arguments opposing fuboTV
FuboTV is a prominent sports-focused streaming service that operates in a highly competitive industry. Despite facing tough competition, FuboTV has shown positive developments. In the second quarter, the company reported a 25% year-over-year revenue growth, reaching $391 million. The number of North American subscribers also increased by 24.2% to 1.5 million, while international subscribers saw a 1.3% growth to 399,000. All in all, it was a decent quarter for FuboTV.
So, what is the issue with the company? The problem lies in its business model, which involves excessive spending on obtaining the rights to showcase the content it offers. The company’s main source of income is from subscriptions, supplemented by a small portion from advertising. However, the revenue generated is insufficient to cover the high costs of subscriptions, resulting in a lack of operating profits, let alone net profits. In the second quarter, fuboTV’s expenses related to subscribers amounted to $326.5 million, marking a 20.5% increase compared to the previous year.
The costs associated with acquiring subscribers at the company have been increasing at a slower rate compared to its revenue. In the reported period, the company experienced an operating loss of $35.7 million, which was an improvement from the $52.5 million loss in the same quarter of the previous year. The net loss per share of $0.08 was also significantly better than the loss per share of $0.17. This positive trend may lead some to believe that fuboTV could become profitable in the future.
However, fuboTV faces another challenge as some of its subscription plans are seasonal, where customers only subscribe for a short period to watch specific sports leagues and then pause their subscription during the off-season. This irregular pattern of subscriptions makes it difficult for fuboTV to consistently generate revenue every quarter. Additionally, since the company has yet to become profitable, it is challenging to argue for fuboTV as a preferable option over its competitors. stocks that are being traded in real-time that are excelling.
