The right stocks can make you rich and change your life.
The wrong stocks, though… They can do a whole lot more than just “underperform.” If only! They can eviscerate your wealth, bleeding out your hard-won profits.
They’re pure portfolio poison.
Surprisingly, not many investors want to talk about this. You certainly don’t hear about the danger in the mainstream media – until it’s too late.
That’s not to suggest they’re obscure companies – some of the “toxic stocks” I’m going to name for you are in fact regularly in the headlines for other reasons, often in glowing terms.
I’m going to run down the list and give you the chance to learn the names of three companies I think everyone should own instead.
But first, if you own any or all of these “toxic stocks,” sell them today…
Mullen Automotive (NASDAQ:MULN) – A Dilution Disaster
This EV player has become notorious for its staggering level of stock dilution, making it a risky bet for any investor’s portfolio. While Mullen has caught the eye of those looking for quick gains from potential short squeezes, let’s be real: banking on such an event is more gamble than investment strategy. The harsh truth is, the dilution will likely erode your investment well before any squeeze could offer a payoff.
To give you a sense of the dilution we’re talking about, Mullen executed a cumulative reverse split ratio of 1-for-22,500 in 2023. Yes, you read that right. It’s an almost incomprehensible level of dilution. Even in a fairy-tale scenario where Mullen morphs into the next Tesla, holding onto this stock could leave you with virtually nothing.
The company’s reliance on toxic financing methods is another red flag. In 2023, a whopping $820.4 million of Mullen’s expenses were tied up in non-cash charges, including significant stock-based compensation and goodwill impairment. Notably, CEO David Michery pocketed $48.87 million in stock awards alone last year. This approach to management compensation, at the expense of shareholder value, is a clear sign that Mullen’s leadership isn’t prioritizing the interests of its investors.
In short, Mullen Automotive is a stock to steer clear of. The company’s financial maneuvers suggest a lack of regard for shareholder equity, making it a poor choice for anyone looking for sustainable investment opportunities.
Rocket Companies (NYSE:RKT) – Time to Eject?
Rocket Companies caught many eyes with its sharp uptick during the final months of last year, fueled by bets on a housing sector revival thanks to expected rate cuts in 2024. But as we’ve stepped into the new year, RKT’s momentum has waned, and now we’re staring down a barrel of interest rate uncertainties. The big question on everyone’s mind: Will the Fed cut rates at all this year? And the answer seems to be leaning towards a ‘maybe not.’
But wait, there’s more. It’s not just the interest rate roulette that’s putting RKT under the microscope. Citi analysts threw in a curveball this January, downgrading RKT to a “sell” due to valuation concerns. Despite a slight dip, RKT’s still trading at a hefty 38.4 times forward earnings, a figure that seems to bake in a mortgage demand rebound as if it were a done deal.
Given these factors, it might be wise to heed Citi’s advice. If you’re holding RKT, now could be the time to consider locking in any gains and stepping aside. With the current market dynamics, it’s better to play it safe than sorry.
Levi Strauss (NYSE:LEVI) – Time to Unravel This Position
Alright, let’s talk about Levi Strauss, the iconic denim brand that’s become a bit of a drag on portfolios. Despite a 12% uptick this year, LEVI‘s performance over the past five years tells a different story, with shares down 17%. It seems the brand’s allure is fading as consumers turn elsewhere for their denim and casual wear needs, a trend mirrored in a series of disappointing earnings reports.
The latest news from Levi Strauss isn’t exactly confidence-inspiring either. The company recently announced a significant restructuring plan, including slashing 10% of its global workforce in an effort to streamline operations. This move is expected to affect up to 15% of its corporate staff, out of more than 19,000 employees at the end of last year. Coming off the back of mixed financial results and lukewarm guidance for 2024, where revenue growth is anticipated to be a meager 1% to 3%—well below the 4.7% analysts were hoping for—it’s clear that Levi’s is bracing for a tough year ahead.
Given these developments, it might be wise to consider whether LEVI still deserves a spot in your investment lineup. With the company facing headwinds and the stock’s long-term decline, now could be the right time to fold this position and look for more promising opportunities elsewhere.
