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 avoid 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…
Mondelez International Inc. (MDLZ)
Recession fears and concerns around the financial sector have investors seeking refuge in consumer staples stocks to shore up their portfolios. However, based on technical analysis some of these traditionally defensive tickers now seem overbought. Case in point – Mondelez.
A stock is considered overbought if its 14-day RSI goes above 70, and is typically seen as an indicator to consider cutting back on exposure. By this measure, with an RSI of 89.2 MDLZ tops the list as one of the most overbought names from the S&P 500. Wall Street sees little-to-no upside potential for the stock over the next twelve months. According to FactSet, the average analyst price target for Mondelez implies an upside of just 3%.
Meta Materials (MMAT)
Semiconductor company Meta Materials develops and produces functional materials and nanocomposites, particularly in lithium battery materials. The micro-cap company is losing far more money than it’s bringing in. In the first quarter MMAT reported revenues of $1.4 million and operating expenses of $24.8 million. The company posted a net earnings loss of $79.1 million for the entire year.
Not to mention, the company is embroiled in litigation on accusations of involvement in “spoofing, naked short selling, market manipulation, and fraud.” Meta Materials share price is down 78% this year, falling to less than 25 cents per share.
Gap Inc. (GAP)
Interest rates in America are now at their highest level in 16 years. While higher rates might tame inflation in the long run, they are likely to slow the economy in the near term and negatively impact certain areas of the market. Clothing retailers such as Gap Inc. tend to suffer when consumers cut back on discretionary spending. This reality has been reflected in Gap’s earnings performance, which have disappointed over multiple quarters. The current high-interest rate climate has proven to be a double whammy for The Gap, coming on the heels of two years of pandemic restrictions at its stores.
The retailer is likely to continue struggling while rates remain high and consumers tighten their purse strings. Slowing sales and poor financial results, coupled with pressure from higher interest rates have pushed GPS stock 17% lower this year. The company’s share price is now down nearly 70% over the past five years. The current consensus among 20 polled analysts is to Hold Gap shares.
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