What not to buy in 2017.
New years bring new beginnings of all kinds — from dieting to goal-setting to re-calibrating your financial life, the dawn of 2017 is a time for introspection and change. For investors, it means taking a look at your portfolio and deciding whether it looks healthy. It also means deciding what stocks, if any, you want to buy. Be careful when making these decisions not to chase after 2016’s best performers just because they did well last year. Top performers rarely post back-to-back years. Regardless of why the following stocks are unattractive, the bottom line is: Stay away from these names, because they’re seven of the worst stocks to buy for 2017.
Nvidia Corp. (ticker: NVDA)
Chip-maker Nvidia had a great year in 2016, as shares more than tripled, making it the single-best performer in the Standard & Poor’s 500 index. Nvidia issued a string of four straight earnings beats in 2016, finishing with a blowout November report in which earnings jumped 104 percent and shares gained 30 percent. It’s true, NVDA is exposed to hot markets like gaming, virtual reality and self-driving cars, but it’s precisely those en vogue buzzwords that have led NVDA to run too far too fast. With shares trading for 10 times book value, NVDA may be at the peak of its media-fueled rally, and 2017 should bring a sharp correction.
Sprint Corp. (S)
Like some other stocks on this list, telecom giant Sprint enjoyed a stellar year of returns in 2016. But that doesn’t mean you should run out and buy Sprint shares for 2017. In fact, that would be downright ill-advised. Sure, Sprint surprised Wall Street with some big customer additions, particularly in the second quarter, but its above-average year didn’t necessitate a 120 percent-plus gain. In the grand scheme of things, Sprint is still a highly indebted, unprofitable and second-tier wireless provider in an industry that’s highly price competitive. Given Sprint has vowed to start raising prices again soon, its streak of subscriber gains could very well end in 2017.
Barrick Gold Corp. (ABX)
Before 2016, gold miners like Barrick suffered a multi-year slump as the price of gold tumbled from its 2011 high above $1,830 an ounce to the $1,060 level. Many, Barrick included, had gone on debt-fueled acquisition sprees near the peak of the market, making the post-2011 years mostly dedicated to shoring up the balance sheet. ABX’s balance sheet has improved, but the debt-equity ratio still stands above 1.1, and although gold prices modestly rebounded in 2016, the outlook for gold doesn’t look great. The Federal Reserve has committed to raising rates, with three hikes expected in 2017. Higher rates generally hit the price of gold, a yield-less asset. Sorry Barrick!
Advanced Micro Devices (AMD)
AMD, like Nvidia, is a chipmaker that went on a remarkable winning streak in 2016. Unlike Nvidia, AMD’s year wasn’t characterized by breakneck growth — instead, the stock soared as the company grew revenue by single-digit percentages and lost money. Remember, investing is all about expectations, and even those lackluster results exceeded Wall Street’s grim expectations. While AMD did ink a few surprising deals, including a licensing deal with a Chinese joint venture and a data center deal with Alphabet (GOOG, GOOGL), AMD frankly hasn’t caught up to its valuation. With a debt-equity ratio of 4.2 and Nvidia and Intel Corp. (INTC) as competitors, a forward P/E above 200 seems aggressive.
Salesforce.com (CRM)
Any company that, in 2016, legitimately considers buying Twitter (TWTR), doesn’t possess good decision-making skills. Sorry, Salesforce. It’s true. The reason you should leave CRM off your “Stocks to Buy for 2017” list is, again, its runaway valuation and troubling philosophy that it can grow via acquisitions for eternity. In 2016 alone, Salesforce snapped up 10 companies, one of which was backed by Salesforce’s CEO Marc Benioff. That’s as many companies as it bought in the previous three years combined. In its biggest acquisition ever, the June $2.8 billion purchase of e-commerce platform Demandware, Salesforce didn’t even use overvalued CRM stock to finance the acquisition, instead using all cash.
JD.com (JD)
Just as selling miner Barrick Gold is one way to play the election of Donald Trump — and the assumption of higher rates that come with him — JD.com is also a Trump trade. And, as you might’ve guessed, Trump’s policies aren’t likely to be good for JD.com. The Chinese e-commerce company would suffer if the U.S. and China get into any sort of trade spat. While the vast majority of JD’s revenue comes from China itself, tariffs on Chinese exports would make buying Chinese less attractive, resulting in fewer manufacturing jobs, lower economic growth, and less consumption. At 135 times forward earnings, it’s not just Chinese exports that don’t look attractive.
Continental Resources (CLR)
Investors in shale driller Continental Resources are already factoring quite a bit of improvement from current conditions into the stock price. Shares more than doubled in 2016, currently trading at more than four times book value. Even if revenue jumps 20 percent or so as analysts expect in 2017, the projected $3 billion in sales won’t eclipse what it did in 2013. Like many shale drillers, CLR is overloaded with debt, having more than $6.8 billion on its balance sheet. Perhaps noting the dramatic run-up in the unprofitable company’s share price, three analysts downgraded the stock in early December.
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7 of the Worst Stocks to Buy for 2017 originally appeared on usnews.com
