Stability is great, but low-volatility stocks may struggle to deliver market-beating returns over time as they sometimes underperform during bull markets.
Luckily for you, StockStory helps you navigate which companies are truly worth holding. Keeping that in mind, here are three low-volatility stocks to avoid and some better opportunities instead.
Heartland Express (HTLD)
Rolling One-Year Beta: 0.83
Founded by the son of a trucker, Heartland Express (NASDAQ: HTLD) offers full-truckload deliveries across the United States and Mexico.
Why Is HTLD Risky?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 17.8% annually over the last two years
- Free cash flow margin dropped by 19.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $8.96 per share, Heartland Express trades at 0.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than HTLD.
Huntington Ingalls (HII)
Rolling One-Year Beta: 0.87
Building Nimitz-class aircraft carriers used in active service, Huntington Ingalls (NYSE: HII) develops marine vessels and their mission systems and maintenance services.
Why Are We Out on HII?
- Average backlog growth of 4.9% over the past two years was mediocre and suggests fewer customers signed long-term contracts
- Earnings per share fell by 1.1% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Huntington Ingalls is trading at $341 per share, or 20.6x forward P/E. If you’re considering HII for your portfolio, see our FREE research report to learn more.
LifeStance Health Group (LFST)
Rolling One-Year Beta: 0.64
With over 6,600 licensed mental health professionals treating more than 880,000 patients annually, LifeStance Health (NASDAQ: LFST) provides outpatient mental health services through a network of clinicians offering psychiatric evaluations, psychological testing, and therapy across 33 states.
Why Does LFST Fall Short?
- Modest revenue base of $1.37 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of -0.5% for the last five years
- Negative returns on capital show management lost money while trying to expand the business
LifeStance Health Group’s stock price of $7.04 implies a valuation ratio of 30.5x forward P/E. Check out our free in-depth research report to learn more about why LFST doesn’t pass our bar.
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