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…
Verizon (VZ)
Verizon has been a staple in many long-term portfolios primarily due to its juicy 6.50% dividend yield. But here’s the thing: a 29% drop over the last five years tells a story that’s hard to ignore. Sure, the stock has risen slightly over the past year, but that’s only after a surprising 27% rally since October.
Digging into the numbers, Verizon’s financial health raises some red flags. With a staggering $128.5 billion in unsecured debt and a slight dip in year-over-year operating revenue, it’s clear the telecom behemoth is under some pressure. The quick ratio sitting at 0.64 doesn’t exactly inspire confidence, signaling more current liabilities than assets.
The reality is, Verizon seems to be on the defensive, struggling to hold onto its market share in a fiercely competitive landscape. The days of robust financial growth appear to be behind it, reflected in its significant five-year decline. And while the dividend might look attractive on the surface, the growth of that dividend is barely inching forward, with a mere 1.25 cents annual increase in its quarterly dividend per share.
After the unexpected rally to end 2023, Verizon’s stock might just be teetering on the edge of a correction. For those looking at the long game, it might be time to reassess Verizon’s place in your portfolio.
Academy Sports and Outdoors (ASO)
Academy Sports and Outdoors has been under the microscope lately, and not for reasons that would excite most investors. Despite the buzz around ASO in 2023, its performance and outlook for 2024 have raised some eyebrows.
Let’s cut to the chase: ASO didn’t hit its mark in the latest quarterly earnings, posting an EPS of $1.38 against the expected $1.58. Revenue also fell short at $1.40 billion, missing the forecasted $1.44 billion and showing a 6.4% dip year-over-year.
But here’s where it gets even stickier – ASO’s financials are looking a bit shaky. With $274.83 million in cash versus a hefty $1.80 billion in debt, we’re looking at a negative cash position of -$20.56 per share. That’s a red flag waving high for financial risk.
The quick ratio isn’t doing them any favors either, sitting at a mere 0.25. This means ASO only has 25 cents in liquid assets for every dollar of current liabilities. Not exactly comforting.
And if you’re hoping for some saving grace in their free cash flow, don’t hold your breath. It’s been on a downward trend, plummeting from $970 million in 2020 to $443 million in 2022.
All things considered, ASO’s current state makes it a prime candidate for our list of stocks to sell or avoid. For those holding ASO, it might be time to reassess and consider whether this small-cap stock aligns with your investment goals.
Baidu (BIDU)
Lastly, we have Baidu, the behemoth behind China’s top search engine. Despite its dominant online presence, Baidu’s stock has taken a hit, sliding down 23% over the year and 10% year to date, now hovering around $104 from its 2021 peak of $339.
The cooling of China’s market has hit Baidu hard, particularly its bread-and-butter online marketing revenue. Despite hefty investments in AI, its cloud business hasn’t made significant strides and remains a minor player in the market.
Here’s the kicker: Baidu is bleeding money and hasn’t turned a profit. The stock’s been stuck fluctuating between $100 and $146 for the last six months, and there’s little to suggest a turnaround is near. Growth is sluggish, and Baidu’s ambitious AI projects might be too little, too late.
The company’s struggle to showcase its AI capabilities to businesses over the past two years is concerning. Moreover, the U.S. ban on chip exports to China throws another wrench in the works. Without these crucial components, Baidu’s ability to run AI models or applications is severely hampered, potentially stalling its growth indefinitely.
Given these challenges, it might be wise to consider selling BIDU before it potentially falls below the $100 mark. Waiting for a turnaround could be a long haul, and there are likely better opportunities elsewhere.
