Three Stocks to Avoid Now

Seeking out great stocks to buy is important, but identifying quality investments is only half the battle.  Many would say it’s just as essential for investors to know which stocks to steer clear of.  A losing stock can eat away at your precious long-term returns.  By taking a proactive approach to avoiding losing stocks, you can set yourself up for greater success in your investing journey.

Even the best gardens need pruning and our team has spotted a few stocks that seem like prime candidates for selling or avoiding.  Read on to find out why we believe these particular stocks are poor investment choices and learn how to apply our analysis to your own portfolio management strategy…

Chesapeake Energy (CHK)

Chesapeake Energy was a solid name to have held in 2022. Like many energy stocks, it had a strong year due to booming energy prices.  The company deals primarily in natural gas, which soared last year. As a result CHK stock increased from $66 to $94 in 2022. Of course, 2023 is an entirely different story.  The stock has since declined to around $79 per share.

The company provided guidance indicating that 2023 production volume will likely be lower than 2022. And the U.S. Energy Information Administration has forecast lower prices throughout 2023.  The company’s forecasted production volume, as well as expected energy prices, are not in Chesapeake’s favor.  The company won’t produce 2022-level revenues in 2023, which is a simple reason to avoid CHK stock now.

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Summit Materials (SUM)

Summit Materials has struggled to show consistent growth since its 2015 initial public offering.  Over the last eight years, the vast majority of the company’s growth has come from acquisitions, with only 2.9% of its growth coming from organic revenue expansion.  Between 2015 and 2022, the company spent more than $1 billion buying other construction material companies, taking on debt to do so. This strategy has weighed on Summit Materials’ balance sheet and share price.

Unfortunately, construction materials isn’t a great business to be in, especially with your average U.S. 30 year mortgage rate now above 6.4% in a cooling market.  Investors would be smart to steer clear of this homebuilder stock.

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Adeia (ADEA)

Adeia is an intellectual property licensing firm with a fairly low forward dividend yield of 1.89%.  Taking into account downside risk,  questionable whether the company can maintain its current rate of payout.  Sell-side analysts anticipate ADEA’s earnings will fall by nearly 30% this year.  If management’s plan to maximze its portfolio fails, not only could its payout get cut to ribbons. This may result in a steady decline for ADEA stock as well.

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