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…

Celsius Holdings (NASDAQ: CELH)

This week’s spotlight for caution falls on Celsius Holdings, a notable player in the rapidly growing energy drink sector. Despite Celsius’s impressive financials—boasting a 36.84% year-over-year revenue increase and a 27.38% growth in assets—there are troubling signs on the horizon that potential investors should heed.

The energy drink market, although projected to expand at an 8.4% CAGR, has been rife with volatility, primarily due to intense competition and regulatory challenges. Celsius finds itself in a precarious position similar to the plight that befell Bang Energy. Currently, Celsius is embroiled in a class action lawsuit over alleged misbranding and selling products without FDA approval, casting a shadow over its operational integrity.

Given these legal challenges and the inherent market volatility, holding onto Celsius shares might be riskier than it appears. Investors might want to consider divesting from CELH until the company navigates through these legal hurdles and proves its stability in the tumultuous energy drink market.

Kohl’s Corporation (NYSE: KSS)

Kohl’s reported a surprising loss of 24 cents per share for the first quarter, a stark contrast to the expected profit of 4 cents per share and last year’s profit of 13 cents per share. With revenue also falling short of expectations at $3.18 billion, down 5.3% from last year, the picture looks bleak.

The underperformance has been attributed to a decline in consumer spending on discretionary items, influenced by persistent inflation and high interest rates. Further compounding the issue, Kohl’s management has revised its 2024 outlook downwards, now anticipating a sales decline of 2% to 4%, whereas analysts had previously forecasted a modest sales increase.

Given the significant cut in earnings projections—from an expected $2.34 per share to just $1.25 to $1.85—the stock’s recent gains are under threat. After a previous 12-month rise of 40%, the revised guidance and disappointing quarter have tempered the stock’s annual growth to just 25%.

Investors may want to consider steering clear of Kohl’s for now, as the revised forecasts and current market conditions suggest potential further downside.

Snap Inc. (NASDAQ: SNAP)

Despite Snapchat’s widespread popularity, Snap’s financial performance continues to raise concerns. The company has consistently struggled to achieve profitability, with the lone exception of a modest net income of $23 million in late 2021. This track record places Snap in a precarious position similar to other tech entities like Reddit, which have also faced challenges in monetizing their platforms effectively.

In Q1 of 2024, Snap reported a 21% year-over-year revenue growth, reaching $1.19 billion. However, this increase in revenue did not translate to profitability, as the company posted a net loss of $305 million, albeit an improvement from the $329 million loss a year prior. More worryingly, Snap’s free cash flow has declined significantly, dropping to $38 million from $103 million in the same quarter last year.

While Snap has managed to keep its debt levels in check with no debt maturing in 2024, the fierce competition from Instagram and a general plateau in user growth—mirroring early growth trends of platforms like Twitter—suggest that Snap’s path to profitability remains unclear.

With the stock down 10% year-to-date and significantly below its all-time high, investors might consider avoiding SNAP shares until the company demonstrates a viable plan for sustainable profitability.