Tough times require tough cost-cutting decisions, including job layoffs. However, to get a company back on the right track, reach profitability, and increase margins, they’re often required. Below are just a few of the top post-layoffs stocks that should flourish, as they get back on the right track.
We also have to consider that job cuts and a new focus on operational efficiencies will eventually reward companies and their shareholders. Let’s talk about seven post-layoffs stocks that are likely to trend higher from undervalued levels.
United Parcel Service (UPS)
United Parcel Service (NYSE:UPS) has been in a downtrend over the last year. However, with a yield of 4.42%, and a forward price-earnings ratio of 17.8, UPS stock looks attractive.
Towards the end of January, UPS announced 12,000 layoffs. With that, UPS expects to save $1 billion annually. In addition, it’s important to note that UPS has already guided for revenue of $92 billion to $94.5 billion for the year. Plus, with negatives now priced into the stock, I expect for UPS to bounce back.
Albemarle (ALB)
Albemarle (NYSE:ALB) plunged by 50% over the last few months. All thanks to a deep correction in lithium prices. However, I believe ALB is attractive and could rebound sharply.
It’s worth noting that in January 2024, the world’s largest lithium producer laid off more than 300 employees. This constitutes 4% of the Company’s workforce.
With significant EBITDA margin contraction, cost-cutting makes sense as Albemarle preserves resources for good times. The company continues to believe that between 2022 and 2027, lithium sales volume is likely to grow at a CAGR of 20%. Therefore, once lithium reverses, I expect significant capital investments toward boosting the lithium conversion capacity. For now, ALB stock has discounted the margin depressed and with cost-cutting initiatives, better days are ahead.
Salesforce (CRM)
At Salesforce (NYSE:CRM), recent layoffs will contribute to operational efficiency and potential margin expansion. It’s worth noting that in 2023, Salesforce had laid off 10% of its workforce. Further, in January, it announced the layoff of 700 workers which constitutes 1% of the company’s workforce. With cost-cutting measures, Salesforce raised its GAAP operating margin guidance for the next year to 14.5% with non-GAAP operating margin likely at 30.5%.
In addition, Salesforce reported an operating cash flow of $6.8 billion for 2023. For the current year, the company has guided for OCF growth of 30% to 33% on a year-on-year basis. Strong cash flows boost the company’s flexibility to invest in research and development. Last year, the company’s R&D as a percentage of revenue was 14%.
Rivian Automotive (RIVN)
Rivian Automotive (NASDAQ:RIVN) plunged 52% on weak Q4 2023 numbers. Not helping, sentiments have been bearish for EV stocks.
After missing production estimates, Rivian announced that it would cut its workforce by 10%. With other cost cutting measures, it’s likely that EBITDA level losses will continue to narrow this year. It’s also worth noting that Rivian reported an improvement of $81,000 in gross profit per vehicle in Q4 2023 on a year-on-year basis.
Without doubt, there are concerns related to production growth and cash burn. However, it seems that RIVN stock is deeply oversold. I would bet on a strong reversal from these levels as the Company focuses on operational efficiencies.
It’s also worth noting that Rivian ended Q4 2023 with cash and equivalents of $9.4 billion. Further, the Company had a total liquidity buffer of $10.5 billion. There are no dilutions concerns with Rivian looking well financed for the next 18 to 24 months.
Expedia (EXPE)
Expedia (NASDAQ:EXPE) looks significantly undervalued at a forward price-earnings ratio of 10.9. With the company planning restructuring and job cuts, I expect EXPE stock to trend higher from undervalued levels.
In a recent news, Expedia announced the elimination of 1,500 employees that would amount to 9% of the workforce. This is a part of the Company’s organizational and technological transformation. For now, the jobs cuts will translate into $80 to $100 million in severance and compensation benefits costs.
It’s worth noting that global macroeconomic headwinds have impacted the tourism industry. However, for 2023, Expedia reported 10% growth in revenue to $12.8 billion. The EBITDA for the same period was $2.7 billion. With cost cutting measures, I expect EBITDA margin expansion even if revenue growth is muted.
Another point to note is that for 2023, the Company reported free cash flow of $1.8 billion. On a year-on-year basis, FCF declined by 34%. If rate cuts boost economic growth, I expect renewed growth in cash flows in 2025 and beyond.
Cisco (CSCO)
Trading at 13x forward earnings, Cisco (NASDAQ:CSCO) is undervalued. Further, CSCO stock offers an attractive dividend yield of 3.31%. Considering the valuations, I believe that a breakout on the upside is imminent.
In February, Cisco announced that it will be laying off more than 4,000 employees. This would constitute 5% of the global workforce. According to CEO Chuck Robbins, there is a “greater degree of caution and scrutiny of deals given the high level of uncertainty.” This is likely to translate into muted quarterly numbers. However, considering the valuation, the worst seems to be discounted in the stock. The layoffs are likely to have a positive impact on key margins.
It’s also important to note that Cisco has pursued acquisitions to boost growth and accelerate business transformation to more recurring revenue. As of Q2 2024, the Company reported $24.7 billion in annualized recurring revenue. In September 2023, Cisco announced the acquisition of Splunk (NASDAQ:SPLK). The two entities have “complementary capabilities in AI, security, and observability.”
Macy’s (M)
Macy’s (NYSE:M) trades at a forward price-earnings ratio of 7.2 and offers an attractive dividend yield of 3.48%. Considering the valuations, I expect a strong rally for M stock.
My bullish view is underscored by the fact that Macy’s has focused on margin improvement measures. In January, the Company announced 2,300 job cuts that would represent 3.5% of the Company’s workforce.
As a part of the restructuring efforts, Macy’s is planning to open 30 smaller stores in the next two years. This is a big shift for a Company known for its giant mall stores. The positive is that Macy’s has been closing underperforming stores. By financial year 2026, the target is to close 150 stores. At the same time, the Company will focus on increasing luxury store locations. Both these factors combined will have a significant impact on EBITDA margin.
On the date of publication, Faisal Humayun did not hold (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.
