The best investors know how to identify winners and fill their portfolios with equities that have the best potential for returns. And at the same time, they know which stocks to avoid. Identifying red flags that make a once-promising name a likely loser is a skill that any investor needs to cultivate.
That’s why the Portfolio Grader exists. It’s a great tool that can help you identify what stocks to buy now, and also which stocks to avoid now. By evaluating a stock based on its fundamentals and its buying pressure – essentially, the amount of money flowing into a stock and its momentum – the Portfolio Grader gives you an advantage in evaluating stocks. Stocks that should be avoided at all costs get “F” grades.
The following picks may be household names, but they’re definitely stocks to avoid. If you have any of these in your portfolio, this is your wake-up call to take action.
|DIS||The Walt Disney Company||$120.23|
Stocks to Avoid: Biogen (BIIB)
Biotech firm Biogen (NASDAQ:BIIB) recently had a pretty solid second-quarter earnings report, beating expectations for both revenue and earnings. But investors took the opportunity to bail out of BIIB stock after those July 20 earnings, sending the stock down roughly 6%.
The biggest issue is lack of clarity around the company’s Alzheimer’s treatment, Aduhelm. The drug has a listed price of $28,200 per year and has been poorly received by the medical community. On top of that, federal regulators have declined to cover the drug for routine treatment under Medicaid. But Biogen didn’t address the issue in its Q2 earnings report, leaving analysts unsettled.
Truist lowered its price target for BIIB stock from $320 to $270. Likewise, Needham dropped its target from $262 to $250.
BIIB stock is down 9% so far in 2022, but there’s too much uncertainty here to consider buying on the dip.
Chimera Investment Corp. (CIM)
Headquartered in New York, Chimera Investment Corp. (NYSE:CIM) is a real estate investment trust, or REIT, that focuses on residential mortgage loans, asset securitization and mortgage-related securities. Essentially, it buys residential mortgage loans and securitizes them so it can make its own mortgage-backed securities.
Unfortunately for investors, the rise in interest rates and inflation are major headwinds for CIM stock. Chimera is down nearly 38% so far this year.
Earnings for the second quarter were red flags. The company missed on both top and bottom-line earnings, posting $116.89 million in revenue. It saw earnings per share, or EPS, of 31 cents versus expectations of 35 cents.
Until the housing market shows signs of improvement, CIM stock is one to avoid.
Stocks to Avoid: Coinbase Global (COIN)
If you want to look at a stock with all the negative momentum in the world, look no further than Coinbase Global (NASDAQ:COIN). Down 65% so far in 2022, Coinbase is suffering from the widespread downturn in cryptocurrencies, known as “crypto winter.”
Coinbase, a cryptocurrency exchange that just started trading publicly in April 2021, reported losing $1.1 billion in the second quarter, sending COIN stock down 13% temporarily. Earnings included revenue of $808.3 million, which was less than the $832.2 million analysts had been expecting. The loss of $4.98 per share in earnings was much worse than the EPS loss of $2.65 that the Street had expected.
The Security and Exchange Commission (SEC) is also investigating Coinbase and its operations. That’s yet another headwind for COIN stock.
The Walt Disney Company (DIS)
Pretty much everyone’s heard of The Walt Disney Company (NYSE:DIS) and Disney stock. The multifaceted entertainment conglomerate has a market cap of more than $210 billion and is best-known for its movie studios and namesake entertainment parks.
Disney has made huge changes in recent years to get into the streaming business as a true competitor to Netflix (NASDAQ:NFLX). It added its Disney Plus streaming service and acquired the rights to Pixar and Marvel films, as well as the Star Wars franchise.
On the surface, you’d think things would be great. But DIS stock is down more than 22% so far this year, and the House of Mouse is in turmoil. The transition from former CEO Bob Iger to current CEO Bob Chapek hasn’t been smooth.
Employees aren’t happy either, protesting what they saw as a lukewarm response to Florida laws that limit instruction on issues regarding sexuality and gender identity. Disney is also losing its special tax district, which will impact the company’s bottom line.
While Disney enjoyed a solid earnings report for its fiscal third quarter, there’s too much going on that will drag DIS stock in the near term.
Stocks to Avoid: Gap (GPS)
A brick-and-mortar retailer would have to be really special in this market to get me to stand up and take notice. But Gap (NYSE:GPS) doesn’t fit that bill.
The company has brands like Gap, Old Navy, Banana Republic and Athleta. They’ve done well in the past, but that doesn’t mean they should be expected to do well today.
The current retail market is light-years different than it was just a few years ago. The Covid-19 pandemic made shopping online much more popular. And while people are returning to the stores, the pandemic proved consumers are just as willing to spend their money online as they are browsing the clothing department in a store.
On top of that, supply chain issues continue to weigh down on retailers like Gap, and inflationary pressures mean customers don’t have same disposable income as they used to have.
In May, CEO Sonia Syngal exited her job abruptly after an unsuccessful run in which she largely failed to revitalize the company’s fashion footprint. GPS stock is down a whopping 42% so far this year.
I wasn’t a huge fan of iRobot (NASDAQ:IRBT) stock before Amazon (NASDAQ:AMZN) announced a $1.7 billion deal to buy out iRobot at $61 per share.
IRBT stock shot up 19% after the announcement and is now trading at nearly $60. So if you didn’t own iRobot share before Amazon’s announcement, you’ve missed any opportunity to turn a quick profit on this deal.
Amazon is expected to be pushing iRobot’s Roomba smart sweepers and other household products on its mammoth e-commerce platform. And surely it will be able to integrate iRobot’s technology with Amazon’s artificial intelligence, Alexa, so owners will be able to command it to schedule a Roomba cleaning.
Hopefully, Amazon will have better luck with this latest addition. iRobot missed on revenue estimates for each of the last three quarters, posting $255.35 million in the most-recent quarter while analysts expected $303.06 million.
From an investors’ perspective, nobody should feel bad to see IRBT’s ticker be swept out with the trash.
Stocks to Avoid: Penn Entertainment (PENN)
It wasn’t so long ago that Penn Entertainment (NASDAQ:PENN) was highly regarded. The company inked a deal with Barstool Sports to partner with its Sportsbook platform in an effort to expand online gambling and sports wagering outside Nevada and New Jersey.
Those days seem very distant now. While states are slowly rolling out sports betting, investor sentiment for the online gambling market has faded. That’s especially true for PENN stock, which is down 25% so far in 2022 and by more than 60% since mid-March 2021.
Earnings in the second quarter were a huge disappointment. While the company managed to squeeze out a revenue beat of $1.63 billion versus expectations of $1.6 billion, the company missed EPS estimates badly. It reported EPS of 15 cents versus EPS expectations of 50 cents.
Analysts are underwhelmed by PENN stock. Stifel recently lowered its price target from $50 to $45, and Barclays dropped its target from $44 to $37.
On the date of publication, Louis Navellier owned DIS stock. He did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.