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…
Lucid Group (NASDAQ:LCID) – Time to Power Down on This EV Play
Despite its sub-$3 price tag, I’m here to tell you that LCID is likely still too rich for what it’s worth. You might stumble upon some pretty optimistic target prices out there, forecasting double or even triple returns in the near future. My advice? Take those with a grain of salt. Lucid’s journey ahead looks anything but smooth.
Here’s the deal: 2024 is looking eerily similar to 2023 for Lucid. Last year, the company barely managed to roll out 8,500 vehicles. This year? They’re aiming for a modest bump to 9,000, according to their latest production forecasts. So, what we’ve got is Lucid treading water, not making any significant strides forward. And let’s not forget, this is the same company that hemorrhaged over $2.8 billion to produce fewer than 10,000 vehicles last year.
The buzz around Lucid mainly hinges on the anticipated Federal Reserve rate cuts, which could give growth stocks a temporary boost. But let’s be clear: a favorable macroeconomic shift isn’t a solid foundation for investing in a company that’s struggled significantly since its inception.
In short, Lucid’s current valuation and the optimism surrounding it seem disconnected from its operational realities. If you’re holding LCID, it might be time to reconsider your position before the stock potentially dips further. Lucid’s road ahead is fraught with challenges, and there might be smoother rides elsewhere in the market.
Peloton (NASDAQ:PTON) – Time to Unclip and Step Away
Next, let’s dive into Peloton, a stock that’s become a classic example of a potential portfolio pitfall. Despite a recent earnings beat that saw Peloton pulling in $743.6 million in revenue—surpassing Wall Street’s expectations—don’t let this news pedal you into a false sense of security.
Here’s the crux: Peloton’s moment in the sun, fueled by pandemic-induced demand, has passed. The world’s moved on, gyms are back, and the appetite for high-end exercise bikes and subscription-based fitness classes isn’t what it used to be. This leaves Peloton pedaling uphill, facing a future where cash burn is a constant threat.
The company’s options are limited and unappealing. Issuing more shares? That’s a direct route to diluting the value for existing shareholders. Taking on more debt to chase elusive growth? Also dilutive and, frankly, a risky bet on a fading business model.
Peloton’s predicament is a stark reminder that not all pandemic darlings are cut out for the long haul. With the world back on its feet, demand for Peloton’s offerings is dwindling, making it a stock to consider dropping from your ride. Don’t let a temporary earnings beat distract you from the broader, more challenging road ahead for Peloton.
Xerox Holdings Corporation (NASDAQ:XRX) – Time to Let Go
Remember Xerox? The brand that became synonymous with photocopying? Well, times have changed, and so has Xerox. The company has branched out into managed services, IT, software, and automation. But don’t let the diversification fool you; Xerox is facing some tough challenges.
The company’s recent move to slash 15% of its workforce is a glaring red flag. It’s a sign that Xerox is scrambling to reorganize its core business and cut costs, hinting at deeper issues.
The financials paint a grim picture too. Xerox’s revenue dipped 9.1% year-over-year in the latest quarter, with a GAAP net loss of $58 million. Adjusted net income took a $90 million hit compared to last year, and adjusted operating margins shrank by 380 basis points. The company’s hopeful promise to achieve a “double-digit adjusted operating income margin by 2026” feels like a distant dream.
Analysts are giving Xerox a thumbs down, and it’s not hard to see why. With declining revenues, a challenging outlook, and a long wait for a potential turnaround, it might be wise to part ways with XRX sooner rather than later. In a market full of opportunities, holding onto Xerox could mean missing out on better investments.
