3 ‘Bargain Stocks’ You Better Avoid at All Costs

Buying stocks and purchasing homes are similar in some ways. For example, homebuyers want to buy a house at a cheap price, but they get suspicious if the price is too low. Investors feel the same way when it comes to buying stocks. That’s because if the price of a home or a stock is too low, it’s natural to wonder if something is horribly wrong with the asset. So, I wanted to point out some of the top risky bargain stocks you’d be better off avoiding.

Walgreens (WBA)

Last Nov., Walgreens (NASDAQ:WBA) announced that it anticipated that it would fork out as much as $4.95 billion over 15 years to “settle all opioid claims against it by participating states, subdivisions and tribes.” However, based on subsequent, actual settlements made by the firm, I believe that figure will prove to be way too low.

For example, on May 18, WBA disclosed that it had agreed to pay nearly $230 million to settle San Francisco’s claims related to the opioid crisis against it. By May, the company announced that it would pay Florida $683 million to settle that state’s claims against it for damages related to the epidemic. So it’s already agreed to pay out 18.5% of the $4.95 billion to just one state and one medium-sized city. Clearly WBA is going to have to hand over much more than $5 billion to settle the claims against it.

Walgreens has a very low forward price-earnings ratio of 6.6, but it’s definitely one of the risky bargain stocks to void at all costs.

3M (MMM)

Like Walgreens, 3M (NYSE:MMM) has a litigation problem. In fact, the company is facing about 260,000 lawsuits alleging its earplugs failed to protect members of the U.S. military from hearing loss. While the lawsuits are currently in mediation, indicating that 3M may be able to resolve the lawsuits, there’s no guarantee that the mediation will result in a settlement.

In addition, RBC Capital kept an “underperform” rating on the shares. Although 3M reported stronger-than-expected Q1 results, the bank wrote that the firm’s full-year guidance suggests that the company’s performance will remain unimpressive this year. In addition, RBC Capital expects the company to continue to be plagued by supply-chain issues and its customers’ high inventory levels.

MMM has a very low trailing price-earnings ratio of just ten, but its’ definitely one of the most risky bargain stocks in the market.

Disney (DIS)

Disney’s (NYSE:DIS) revenue last year surged to $82.72 billion from $67.4 billion year over year. All after its theme parks reopened and consumers returned to movie theaters. However, its streaming channels lost about $4 billion last year. It also continued to be hurt by the cord-cutting phenomenon and poor movie-theater  attendance. As a result of these negative catalysts, its operating margin fell from its historical median of 25% to just 8.3%. Unfortunately, with theatre attendance still low, and cord-cutting likely to persist, Disney may continue to struggle.

Investment firm Macquarie recently downgraded DIS to “neutral,” saying that the company’s outlook is “clouded with uncertainties.” The financial performance of the company’s conventional TV networks are likely to deteriorate going forward, while DIS may not meet its goal of generating a profit from its streaming businesses next year, warned the firm. DIS stock has a forward price-earnings ratio of 23. That’s a low valuation for a growth stock, and many still put  DIS stock in the latter category. But Disney is clearly a high-risk bargain stock.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.