2 Underperforming Holdings to Reduce

Investors should be aware that these stocks could continue performing poorly

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Nov 22, 2021
Summary
  • Nuveen Municipal Credit Income Fund and Huaneng Power International Inc have disappointed their shareholders over the past several years, underperforming the S&P 500.
  • There aren't any signs these businesses could improve, as financials are poor and outlooks are not promising.
  • Wall Street has downgraded these stocks to lackluster ratings.
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Shareholders of Nuveen Municipal Credit Income Fund (

NZF, Financial) and Huaneng Power International Inc (HNP, Financial) have seen their assets decline in value dramatically over the past couple of years, underperforming the S&P 500 Index substantially. It also appears that their profitability is not improving, and their financial conditions could be stronger. In essence, there is not much to hope for a better future regarding these stocks. Furthermore, sell-side analysts on Wall Street have recently downgraded to lackluster ratings for these stocks, which means that share prices are foreseen to continue declining over the months ahead.

Nuveen Municipal Credit Income Fund

Nuveen Municipal Credit Income Fund (

NZF, Financial) is a Chicago, Illinois-based asset management firm focusing on fixed income markets of the United States. It specifically seeks public loans rated Baa/BBB or higher, coupled with a maturity averaging 18 years, among undervalued municipal securities.

Shares were up 12% over the past year and up 29% over the past three years, underperforming the S&P 500 by 28% and 185%, respectively.

The company is paying a dividend of 6.6 cents per share every month, but financial conditions could be better as the weighted average cost of capital (WACC) is only 1.7% and GuruFocus assigns the financial strength a score of 4 out of a total of 10.

GuruFocus rated the company's profitability 2 out of 10, driven by a three-year revenue per share growth rate of -44.2% (versus the industry median of 2.95%), and a three-year EPS without NRI growth rate of -46.3% (versus the industry median of 7.1%).

This period doesn't seem propitious for fixed income securities, especially those with a low-median rating, as the U.S. Treasury Yield curve is higher than last year. Prices are going down because investors are selling public debenture securities. Currently, they prefer holding cash, investing in safe-haven assets such as gold or the U.S. dollar or purchasing shares of listed equities.

Shares traded around $17.16 at close on Friday for a market capitalization of $2.44 billion and a 52-week range of $15.26 to $17.59.

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On Wall Street, the stock has one recommendation rating of sell.

Huaneng Power International Inc

Huaneng Power International Inc (

HNP, Financial) is a Beijing, China-based independent generator of electricity selling power to regional grid operators in China, Singapore and Pakistan.

Shares have increased by 6.43% over the past year but declined by 29% over the past three years, underperforming the S&P 500 by 34% and 185%, respectively.

The company last paid an annual dividend of $1.107 per common share on Sept. 10. However, the balance sheet doesn’t seem to lay on strong pillars as the Altman Z-Score of 0.53 indicates that the company is in financial distress. This means that the business could go bankrupt within two years. GuruFocus rated the financial strength with a score of 3 out of a 10.

Regarding profitability, the company has seen its earnings per share declining over the past three years at a pace of 26.3% per annum. Furthermore, except for the three-year revenue growth rate, all the other financial ratios measuring the company’s profitability are underperforming the average for the industry.

The coordinated action headed by the the U.S. and other non-OPEC countries, including China, to release oil reserves in order to bring the price per barrel down may impact the profitability of electricity companies. The necessity to lower soaring energy costs could play a major role in reducing profitability for Huaneng Power and other power companies.

The stock closed at $16.89 on Friday for a market capitalization of $6.63 billion and a 52-week range of $12.79 to $23.36.

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The 14-day relative strength index of 32 indicates the stock is not far from oversold levels following the decline.

On Wall Street, the stock has one recommendation rating of hold and one underperform rating.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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