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…

Snowflake (NYSE: SNOW) – Cooling Off Amidst AI Hype

Snowflake, a leader in cloud-based data warehousing, has seen its shares tumble 21% this year, sharply contrasting with the broader tech surge driven by AI excitement. This decline highlights growing concerns that Snowflake may be lagging in the AI race, a crucial area of growth within the tech sector.

Despite its historic IPO in September 2020, which marked the largest software debut of its time and pushed its market valuation to a peak of $123 billion by the end of 2021, Snowflake’s value has more than halved to just over $50 billion. This downturn is particularly glaring as its peers in the SaaS domain, like Palantir and MongoDB, have successfully capitalized on their AI initiatives, seeing their stocks appreciate as a result.

Adding to its challenges, Snowflake faced a leadership shakeup with the departure of CEO Frank Slootman earlier this year, further shaking investor confidence. Although the new CEO, Sridhar Ramaswamy, brings a strong AI background from his time at Alphabet and his AI startup Neeva, the company’s future in AI remains uncertain. Recently, Snowflake announced the launch of Arctic, its own large language model, signaling a step towards strengthening its AI offerings. However, it’s still an open question whether this move can significantly alter its trajectory in the competitive AI landscape.

Investors might consider staying on the sidelines for now, watching how Snowflake’s strategies under new leadership unfold in the rapidly evolving tech arena.

Arcadium Lithium (NYSE:ALTM) – Caution Despite Recent Surge

Arcadium Lithium’s shares saw a significant rise, jumping 12.2% early this week following an amended 10-K filing, reflecting the latest figures post-merger between America’s Livent and Australia’s Allkem. While the merger has positioned Arcadium with a market cap of $4.2 billion and robust sales of $882 million last year, not all that glitters is golden.

Investors initially responded positively to the transparency in the new report, which showed $330 million in net profit and an attractive valuation of 12.7x trailing earnings. However, a closer look at the cash flow statement reveals a concerning picture: despite the apparent profitability, the company did not generate any cash profit. This discrepancy between accounting profit and cash flow is a significant red flag.

Moreover, projections aren’t promising, with analysts forecasting a steep decline in GAAP profits over the coming years and no expected free cash flow for the next two years. Given these factors, today’s enthusiasm around Arcadium Lithium might be overly optimistic. For those looking at the long term, the stock remains a sell as the company struggles to translate its nominal profits into tangible cash flow for shareholders.

Matterport (MTTR) – Struggling in the VR Sector

Matterport’s stock has been on a significant decline, dropping 30% since January and signaling a tough year ahead within the competitive landscape of VR stocks. This downward trend has garnered a bearish outlook from analysts, who predominantly predict that the stock will underperform throughout 2024.

Despite some potentially positive developments, such as a strategic partnership with Crunch Fitness, the company faces a steep uphill battle. These efforts, although steps in the right direction, may not be enough to counteract the broader challenges that Matterport has encountered. Adjusting to the changing economic conditions that once buoyed its stock has proven difficult, leading to drastic measures including a 30% reduction in its workforce as part of a broader cost-cutting initiative.CEO RJ Pittman emphasized that these tough decisions are meant to “sharpen our strategic focus and accelerate our path to profitability.” This plan was unveiled in the second quarter of 2023, yet the hoped-for turnaround in Matterport’s fortunes remains elusive. Investors should be wary of the stock’s current trajectory and consider the ongoing challenges the company faces when evaluating its place in their portfolios.


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