Stocks with fatal flaws
No investor wants to make a mistake with hard-earned money. There’s nothing more unnerving than checking your stock portfolio and finding it’s worth less than what you put into it. But there are plenty of reasons — rising interest rates, sagging oil prices, market volatility, an aging bull market — to err on the side of caution these days when it comes to your stock portfolio. Here’s a look at seven stocks you might want to avoid now.
Tesla Motors (ticker: TSLA)
Elon Musk may be changing the world, but his company has yet to show a profit. “Investors are valuing Tesla as if everything will go smoothly for the automaker over the next several years, which is a scenario I would not bet on,” says Henry To, partner at CB Capital Partners in Newport Beach, California. “What’s worse, its losses have actually accelerated in recent years, with the company losing $294 million in 2014 and $889 million in 2015.”
Clorox Co. (CLX)
Out-of-whack valuations make this defensive consumer staples company a stock to avoid. “A slow-growth company selling these kinds of products shouldn’t be trading for 24 times earnings and at a dividend yield of just 2.5 percent,” says Charles Sizemore, founder of Dallas-based Sizemore Capital Management. “Clorox has virtually zero chance of coming under financial distress any time soon. But it’s hard to see investors earning much of a long-term return buying in at these prices.”
Kimberly-Clark Corp. (KMB)
This maker of disposable diapers and Kleenex may make a mess out of a portfolio. “Investors that are scared of the volatility we’ve had this year, but also scared to be completely out of the market for fear of being left behind have all crowded into some of the most defensive names,” Sizemore says. “If the market tanks from here, KMB might fall less. But looking forward into the next five years, it’s hard to see KMB keeping pace with the broader market.”
J.C. Penney Co. (JCP)
JCP stock has nearly doubled in value since the start of the year, boosted by better-than-expected sales and more efficient cost controls. But the future might not be so bright. “The stock is still down 70 percent from its most recent peak in 2012 as mall and department store traffic continue its structural decline. With companies like Amazon.com (AMZN) continuing to invest into a more efficient distribution system and an expanded array of offerings, it will be difficult for J.C. Penney to compete,” To says.
Colgate-Palmolive (CL)
Colgate-Palmolive is another consumer staples company that investors often think of as a defensive and safer investment in times of market turmoil. “Colgate is in the business of selling toothpaste, soap and other sundries. But this is a boring consumer staple that ought to be a dividend cash cow. It’s not,” Sizemore says. “It’s hard to see a buy-and-hold investor making much money here.”
Sears Holding Corp. (SHLD)
Sears, which also owns Kmart department stores, has seen its share of troubles in recent years. Despite spinning off assets including Lands’ End (LE), the retailer posted a deep fourth-quarter loss as it struggles to battle against new-economy Internet retailers. “I was a huge fan of Sears for a long time, but the reality is that the company is going to take years to work out its challenges,” says Hilary Kramer, editor of the GameChangers stock newsletter.
Valeant Pharmaceuticals International (VRX)
Valeant develops, manufactures and sells pharmaceuticals and medical devices in the U.S. and internationally. But unlike other drug makers, its business model includes a low research and development budget, and the company makes its returns by acquiring drugs and raising prices. The practice has garnered close scrutiny from U.S. regulators. “Valeant’s business model is simply based on finding loopholes in the insurance and regulatory processes as opposed to benefiting its customers. I believe it’s just a matter of time before Valeant begins to lose money,” To says.
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7 Stocks That Will Ruin Your Portfolio originally appeared on usnews.com
