Bear Watch Weekly: Stocks to Sideline Now

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…

Adobe (ADBE) – Facing Intense AI Competition

Adobe’s stock has been under significant pressure, dropping nearly 20% this year following the debut of privately held OpenAI’s latest offering, Sora, a new AI platform capable of generating videos from written descriptions. This new technology directly challenges Adobe’s stronghold in creative software products, stirring concerns about the company’s future in an AI-dominated landscape.

While Adobe did manage to exceed Wall Street’s earnings expectations recently, its forward guidance was less optimistic. For the current second quarter, Adobe projected earnings between $4.35 to $4.40 per share and revenue forecasts ranging from $5.25 billion to $5.30 billion—figures that fell short of analyst expectations of $4.38 per share and $5.31 billion in revenue. This resulted in a sharp 12% drop in ADBE stock in just one trading session.

In response to these challenges, Adobe is not sitting back. The company has integrated AI into its products where feasible, recently introducing an AI assistant for its Reader and Acrobat applications. Furthermore, in what might be seen as a strategic pivot or a defensive move, Adobe is reportedly considering a partnership with OpenAI to incorporate Sora’s technology into its offerings. Whether this potential collaboration will be enough to fend off the rising competition and reassure investors remains a critical question for those holding or considering Adobe stock.

Mullen Automotive (MULN) – Financial Turbulence Continues

Mullen Automotive has been navigating through tough waters, marked by significant financial struggles and operational challenges. In 2023, MULN reported a staggering net loss of $308.9 million for the quarter ending June 30, a substantial increase from a loss of $7.1 million in the same period the previous year. The total losses for the nine months up to June 30 reached $792.7 million, primarily driven by high non-cash expenses and extensive investments in ramping up operations.

Looking ahead to 2024, Mullen has ambitious plans to expand its product line and scale up production, targeting the delivery of various new vehicle classes. Despite these plans, the financial viability of these initiatives is in jeopardy due to the company’s current financial position. With only about $88 million in cash against a burn rate of over $226 million, the necessity to raise additional capital is evident. This financial pressure is further highlighted by an alarming increase in outstanding shares, which have risen by 6,527.73% over the last year as part of efforts to avoid delisting.

Investors should approach Mullen Automotive with caution. The company’s ongoing financial difficulties, coupled with its aggressive capital-raising tactics, paint a picture of a high-risk venture. MULN’s ability to stabilize its operations and achieve profitability remains highly uncertain, positioning it as a prime candidate for this week’s stocks to avoid or sell watchlist.

Netflix (NFLX) – Shifting Focus Away from Subscriber Metrics

Netflix’s decision to stop reporting its quarterly membership numbers and average revenue per membership has left investors and analysts wary, leading to a 10% drop in the stock following the announcement. The streaming giant, once known for its transparency in subscriber metrics, is shifting focus towards revenue, operating margins, and free cash flow. This change has raised concerns about the underlying reasons, particularly fears that subscriber growth may be stalling.

Analysts have voiced concerns that the cessation of subscriber reporting could be a red flag, suggesting potential challenges in Netflix’s ability to maintain its growth momentum, especially when compared to rivals like Walt Disney Co. (DIS). This strategic pivot from subscriber numbers, traditionally a key metric for gauging the company’s market dominance and growth trajectory, has overshadowed what was otherwise a strong first-quarter performance from Netflix.

Despite a year-to-date increase of about 26% in NFLX stock, the uncertainty around subscriber trends could pose risks to its valuation, especially if the market perceives the change as a signal of decelerating growth. Given these dynamics, Netflix appears as a tech stock to consider selling before potential market corrections intensify these concerns.