For any market endeavor, the discipline to follow through with stocks to avoid is just as important as knowing which securities to buy. From certain angles, the former skillset may be more important than the latter.
That’s because in a secular bull market, most stocks generally tend to rise. So long as you’re not speculating on extremely risky fare, chances are, you’ll be more successful than not. However, a good run can always turn sour. So, one must have the discipline to not be greedy and take profits while they materialize.
However, when the market faces the risk of a broader downturn, it’s more important than ever to rid yourself of ideas that could go bad. This is about protecting yourself and nothing more. On that note, below are three stocks to avoid.
QuantumScape (QS)
At first glance, QuantumScape (NYSE:QS) seems like a very sensible investment idea. With the company focused on developing solid-state batteries (SSBs), it could be a potential gamechanger for electric vehicles. Unfortunately, the sector is currently suffering from a demand fallout. Nevertheless, that’s a relatively minor issue compared to what ails the enterprise.
Irrespective of whatever happens in the upcoming first-quarter earnings report, the harsh reality is that SSBs are difficult to develop. On paper, the battery format commands higher energy densities, thus addressing issues such as range anxiety. However, SSBs are also prone to dendrite formations. Over time, that can lead to cracks in the electrolyte, presenting short-circuit risks. That’s both an operational conundrum and a safety hazard.
Further, the valuation is rich. Currently, the company doesn’t generate revenue. However, by fiscal 2025, sales could hit $5.38 million. That’s the average consensus, with the high-side estimate hitting $18 million. Either way, Gurufocus notes that QuantumScape trades for an enterprise-value-to-forward-revenue ratio of 262.54X.
It’s no wonder that analysts rate shares a moderate sell. With that, it’s one of the stocks to avoid.
Unilever (UL)
For the longest time, I’ve been a big fan of Unilever (NYSE:UL). As a stalwart in the household and personal products category, Unilever enjoys consistent demand. As well, it features popular brands such as Dove and Hellmann’s. However, it has become increasingly apparent that the company suffers from a political problem. And this conundrum clashes with its diversity and equity protocols, making UL stock messy.
Specifically, the KSE Institute identifies Unilever as a company that not only refuses to leave Russia but plays coy with its corporate language to give the impression that it will do so. However, the KSE discovered evidence that Unilever continues to profit from Russian operations. Subsequently, Ukraine’s National Agency on Corruption Prevention added the company to the list of “International Sponsors of War.”
In my opinion, it’s deeply embarrassing for Unilever because it made such a strong push for equity, diversity and inclusion during the social turmoil of 2020. Stated differently, the company’s not holding up to its principles. Subsequently, that could lead to consumers avoiding its brands during a particularly trying time. For that, UL is one of the stocks to avoid.
Rocket Companies (RKT)
A financial services firm, Rocket Companies (NYSE:RKT) operates in the mortgage finance space. I probably don’t need to say anymore regarding why it’s one of the stocks to avoid. Sure, mortgages were flying out the door during the heyday of 2020 and 2021. That was when interest rates were at rock-bottom levels. However, the paradigm has shifted dramatically.
Further, RKT stock suffers from an addressable market conundrum. Frankly, many of the folks who financed their homes during the early pandemic years were only able to do so because of lower rates. With higher rates, it’s not just about higher monthly costs, which of course is a significant factor. Rather, people may not even be able to qualify for an adequate mortgage.
So, those who wanted to buy a home and had the means to do so already did. Those who could not do it back then still can’t do it now. No matter what the Federal Reserve does, the situation doesn’t look appealing. Raised rates would theoretically lower home prices but impose financing obstacles. Lowering rates would be inflationary.
Analysts rate RKT a moderate sell. I wouldn’t go contrarian on this one.
On the date of publication, Josh Enomoto 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.