The $10-50 price range often includes mid-sized businesses with proven track records and plenty of growth runway ahead. They also usually carry less risk than penny stocks, though they’re not immune to volatility as many lack the scale advantages of their larger peers.
This is precisely where StockStory comes in - we do the heavy lifting to identify companies with solid fundamentals so you can invest with confidence. Keeping that in mind, here are three stocks under $50 to avoid and some other investments you should consider instead.
El Pollo Loco (LOCO)
Share Price: $16.97
With a name that translates into ‘The Crazy Chicken’, El Pollo Loco (NASDAQ: LOCO) is a fast food chain known for its citrus-marinated, fire-grilled chicken recipe that hails from the coastal town of Sinaloa, Mexico.
Why Do We Think LOCO Will Underperform?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Modest revenue base of $497.1 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Estimated sales growth of 2% for the next 12 months is soft and implies weaker demand
El Pollo Loco is trading at $16.97 per share, or 17x forward P/E. Check out our free in-depth research report to learn more about why LOCO doesn’t pass our bar.
Select Medical (SEM)
Share Price: $16.52
With a nationwide network spanning 46 states and over 2,700 healthcare facilities, Select Medical (NYSE: SEM) operates critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers across the United States.
Why Are We Cautious About SEM?
- Declining admissions over the past two years indicate demand is soft and that the company may need to revise its strategy
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $16.52 per share, Select Medical trades at 12.6x forward P/E. To fully understand why you should be careful with SEM, check out our full research report (it’s free).
Lincoln Financial Group (LNC)
Share Price: $35.30
Founded in 1905 by a group of Fort Wayne, Indiana businessmen who named the company after Abraham Lincoln, Lincoln National Corporation (NYSE: LNC) provides insurance, retirement plans, and wealth management products through its subsidiaries, operating under four main segments: Annuities, Life Insurance, Group Protection, and Retirement Plan Services.
Why Does LNC Give Us Pause?
- Net premiums earned remained stagnant over the last five years, indicating expansion challenges this cycle
- Estimated sales growth of 2.6% for the next 12 months implies demand will slow from its two-year trend
- Book value per share tumbled by 14% annually over the last five years, showing insurance sector trends are working against it during this cycle
Lincoln Financial Group’s stock price of $35.30 implies a valuation ratio of 0.7x forward P/B. Read our free research report to see why you should think twice about including LNC in your portfolio.
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