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…

Ameren Corporation (NYSE: AEE)

Ameren Corporation, a staple in the American energy sector known for its robust 3.8% dividend yield. However, recent developments suggest caution. Over the past year, Ameren’s stock has declined by 12%, a drop that may not just be a temporary dip but a reflection of deeper challenges.

A critical issue for Ameren is its ongoing reliance on coal power plants. While the company is taking commendable steps to phase out its largest and most polluting coal plants, this transition requires significant capital investment. Such investments are expected to strain financial performance in the near term, potentially stifling stock growth.

Recent quarters have already shown a decline in revenues and net income, signaling possible trouble ahead. This financial downturn could prompt a selloff, driving the stock price even lower. Given these factors, it seems prudent to place Ameren on the sell list until it stabilizes, after which it might again become a viable option for environmentally and financially forward-looking portfolios.

CrowdStrike Holdings (NASDAQ: CRWD)

CrowdStrike Holdings stands out as a top-tier player in the cybersecurity sector, known for its robust cloud-delivered security solutions. Yet, despite its strong fundamentals, caution is warranted with CRWD stock at this juncture.

Over the past year, CRWD has seen an impressive 100% surge in its stock price, pushing its valuations into potentially precarious territory. Currently, the stock is trading at a forward P/E ratio of 80.7. Such a high valuation suggests there might be substantial downside risk, making it prudent to hold off on new investments until the price becomes more reasonable.

While CrowdStrike’s financial health remains solid—evidenced by a forecasted EPS growth of 25% next year and a free cash flow of over $1 billion—the stock’s high price-earnings-to-growth ratio (over 3) indicates that the growth potential could already be well-reflected in the current stock price.

Investors might consider waiting for a more attractive entry point before increasing their stakes in CRWD, as the current market price leaves little room for error. This strategic patience could pay off, especially in a market that rewards prudent valuation assessments.

Altair Engineering (NASDAQ: ALTR)

Altair Engineering is a company at the forefront of software and cloud solutions in simulation, design, and data analytics. Despite its solid position in an attractive sector, there are concerns that now may be a prudent time to be cautious with ALTR stock.

Currently, Altair’s stock trades near its 52-week highs, supported by a forward P/E ratio of 71. This valuation could be considered stretched, especially given the company’s recent performance and future revenue growth projections. In Q1 2024, Altair reported a modest year-on-year revenue growth of 4.1% to $172.9 million and has set full-year revenue growth targets of only 6.4% to 8%.

While the company boasts robust free cash flow, which reached $70.7 million in the first quarter, and anticipates an annualized FCF of nearly $300 million, this financial health might not fully justify the high valuation at current stock prices. Given these factors, a 20% to 30% correction in ALTR stock could be on the horizon, making it a candidate for our avoid list until the valuation aligns more closely with growth expectations.


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