Why I think it may be time to sell these 2 fallen stars

Shareholders of Coca-Cola Amatil Ltd (ASX: CCL) and Sirtex Medical Limited (ASX: SRX) have endured a torrid five days of trade as both stocks dropped 13% and 12.5% respectively. Driving the fall in share price were disappointing market updates from both companies.

With Coca-Cola’s and Sirtex’s share price appearing to settle after their savage sell-offs, I thought it was time to revisit these former market-darlings to assess whether they continue to deserve a place in your portfolio.

Coca-Cola update

Coca-Cola Amatil provided a post-Easter trading update last Friday, announcing that sales in its flagship Australian beverages business have been weaker than expected.

Consequently, management changed its previous guidance of mid-single-digit earnings growth to forecast that first-half net profit after tax (NPAT) will be lower than its prior corresponding period. Full-year underlying NPAT is expected to be flat on the prior year, implying almost no growth for the year.

Although Coca-Cola’s ubiquitous brand or “moat” and dominant market position should be reason enough to buy the stock at current prices, I for one am not tempted.

Structural issues

Whilst Coca-Cola Amatil’s trailing dividend yield of about 5% (fully-franked) would quench the thirst of income-starved investors, the problem I have with the business is the structural issues it faces.

With Australians (and most of the world) becoming more and more health conscious, the sugar-filled syrup The Coca-Cola Company has built its reputation on is losing its fizz with today’s younger generations. Though Coca-Cola Amatil (and The Coca-Cola Company) is trying to combat this attrition through new products and a move into “healthier alternatives”, the company seems to be gaining little traction as younger generations shun traditional soft drinks for eco-friendly and healthier alternatives. For example the Pressed Juices brand, or Coke’s own SodaStream.

Accordingly, until Coca-Cola Amatil can demonstrate that it has captivated younger generations, I believe the business could face years of decline and therefore cannot recommend buying the stock at current prices.

Sirtex update

On Monday, Sirtex came out of its trading halt to update the market on the trial results of its SARAH clinical study. The SARAH trial aimed to prove that Sirtex’s (only) product – the SIR-Spheres – is more effective at treating the most common type of primary liver cancer compared to the leading treatment – Bayer AG’s Nexavar (also known as Sorafenib).

Unfortunately for Sirtex, the results showed that its SIR-Spheres did not increase the overall survival rate as against Nexavar. Resultantly, the market took this as a sign that Sirtex’s product does not have the qualities of being the treatment of choice for liver cancer patients.

Perception issues

Whilst this is a big blow for Sirtex, the silver lining is that its product did manage to demonstrate an increased quality of life (based on lower toxicity as a result of using SIR-Spheres).

However, given oncologist-preferred treatment generally requires clinical acknowledgement that the product is indeed better, Sirtex faces issues to commercialise this study and market it as a “better alternative” for treating liver cancer.

Although SIR-Spheres are cheaper than Nexavar, absent medical insurance backing, Sirtex has little clinically founded basis for cancer patients to use its product over Nexavar, which is more commonly prescribed by oncologists. This could spell trouble for dose sales and the company.

Foolish takeaway

Investors must remember that both Coca-Cola Amatil and Sirtex are undergoing a period of substantial change. Whilst both companies have an illustrious past as market-darlings, the current issues each faces makes both stocks to avoid for the time being, in my opinion.

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Motley Fool contributor Rachit Dudhwala owns shares of Coca-Cola Amatil Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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