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…
Varonis Systems (NASDAQ: VRNS)
This week’s sell alert focuses on Varonis Systems, a prominent player in the cybersecurity space known for its advanced Data Security Platform. Despite Varonis’s strong product offerings and recent strategic moves, including a notable partnership with Microsoft to secure its Copilot AI chatbot service, there are reasons for investors to proceed with caution.
While Varonis’s shift towards a SaaS business model is gaining traction—evidenced by a 30% year-over-year increase in SaaS-linked ARR during Q1 2024—the company continues to face profitability challenges. Revenue growth remains modest, confined to single-digit percentages, which is concerning given the current valuation multiples.
Given these factors, Varonis’s stock might be at risk of a sharp devaluation should market sentiment shift. The stretched valuations coupled with the company’s ongoing unprofitability make VRNS a stock to consider avoiding, at least until clearer signs of accelerated top-line growth and improved profitability emerge.
Nikola (NASDAQ: NKLA)
Nikola was once celebrated for its innovative approach to hydrogen fuel cell-powered trucks, but is now more notorious for its struggles. Nikola’s valuation has plummeted, essentially erasing nearly all its market value over the past three years. Currently, it’s trading under a dollar, placing it firmly among penny stocks that cautious investors might prefer to avoid.
The decline began in earnest following accusations by Hindenburg Research, which claimed Nikola and its founder misled investors. This controversy reached a peak when founder Trevor Milton was sentenced to prison last year, casting a long shadow over the company.
Under the leadership of CEO Steve Girsky, Nikola aims to generate $150 million to $170 million in revenue this year. However, given the company’s history of unmet promises and a first quarter that missed revenue forecasts, investors should view these projections with skepticism.
With the stock down and surrounded by uncertainties, NKLA appears to be a risky bet. Investors might consider staying away until Nikola demonstrates clear signs of operational stability and growth.
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.
