Three Stocks to Avoid for the Week of August 6th

Seeking out great stocks to buy is essential, but many would say it’s even more important to know which stocks to steer clear of.  A losing stock can eat away at your precious long-term returns.  So, figuring out which stocks to trim or get rid of is essential for proper portfolio maintenance.  

Even the best gardens need pruning and our team has spotted a few stocks that seem like prime candidates for selling or avoiding.  Continue reading to find out which three stocks our team is staying away from this week. 

Shoals Technologies (SHLS) is a key player in the solar industry mainly serving engineering, procurement and construction firms building solar projects.  The company enjoys a leadership position in the solar electrical balance-of-system market and has enjoyed robust margins.  However, analysts on Wall are beginning to wonder if the sun is setting for SHLS.  The stock is off more than 26% this year and competition in the space could make for a complicated recovery.  

As such, Shoals is the recent recipient of a no-moat rating from Morningstar’s Brett Castelli.  “We think uncertainty here is very high, owing to the company’s concentrated customer base (its top three customers accounted for 40% of sales in 2021) and the cyclicality of the solar industry, he adds. We think shares are worth $13.50 each; they’re trading 27% above that,” the analyst noted.  

Shoals share price is down considerably from its February 2021 peak.  But at more than 150 times forward earnings, SHLS is anything but a bargain.  

The market’s confidence in digital currencies has been rattled, possibly to the point of no return. The move lower in cryptos has led to a more than 60% decline so far this year for MicroStrategy Incorporated (MSTR), a leading worldwide provider of business intelligence software.

You’re likely wondering why the enterprise software company has been so deeply affected by the decline in cryptos.  Well, the answer may shock you.  Executive Officer Michael Saylor has gone all in on Bitcoin over the past two years.  Since May of 2020, MicroStrategy has purchased nearly $4 billion worth in Bitcoin.

However, MicroStrategy didn’t buy Bitcoin with its own money — the company borrowed part of it.  On March 29th, MicroStrategy announced that it had secured a $205 million loan from Silvergate Capital to purchase Bitcoin.  And it collateralized this loan with Bitcoin.  It was a decision that seemed brilliant when he invested billions in the top crypto as it was surging.  But it’s been disastrous on the way down as BTC price has plunged more than 50% since the purchase.

Chaos in the crypto market is intensifying.  At the time of writing this, the price of Bitcoin is at about $21,000, meaning the company will likely need to provide more collateral to avoid liquidation.  According to its Q1 presentation, MicroStrategy has over 95,000 Bitcoins it can use to satisfy its lending agreement with Silvergate Capital at a loss to the company.

 Even if the company’s Bitcoin position doesn’t get liquidated, it has more than $1.6 billion in convertible senior notes due in 2025 and 2027.  Until there’s a concrete plan in place to create shareholder value with Bitcoin, MSTR is one stock we’re staying away from. 

There’s no question that electric vehicles are the future, but investors looking for bargains in the midst of the market meltdown would be wise to steer clear of third-party companies specializing in EV charging stations like Blink Charging (BLNK).  It’s much too soon to predict winners in this cutthroat niche of the EV industry.  Especially because it’s still not clear if third-party charging kiosks will ever be profitable.  

Analysts don’t see Blink becoming profitable before 2026, by then the company will likely be looking at a much different landscape.  A lot can change in three and a half years. From the current vantage point the near-future looks murky for the entire EV industry.  Earlier this month Elon Musk announced that Tesla, the largest maker of EVs, would be laying off 10% of its workforce this year amid supply chain pressure and restricted production at its Shanghai factory.  

Blink Charging shares have fallen 70% since peaking in early 2021 and are 41% lower year-to-date, but the stock is still trading at 28.5 times trailing twelve month revenue.  For perspective, the price-to-sales ratio for the S&P 500 index as of June 1 was roughly 3. And this was also way higher than what the ratio has been historically.  The current consensus is to Hold Blink stock.  We’ll stick to the sidelines on third-party EV charging companies until EV industry headwinds subside.