While 2017 isn’t baby-faced anymore, there’s still plenty of time on the clock. For investors who haven’t yet rebalanced their portfolio — or for those simply looking to avoid the next market downturn — steering clear of ticking time bombs is absolutely vital for solid 2017 performance.
When looking for stocks to buy, be careful not to chase after 2016’s best performers just because they did well last year.
Investors should regularly be eyeing their portfolios to decide whether they look healthy. That sometimes means deciding what stocks, if any, you want to buy. And for a variety of reasons, you’ll want to stay away from these names — because they’re seven of the worst stocks to buy for 2017.
[See: 10 of the Worst Performing Stocks of 2016.]
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 over 10 times book value, NVDA may have already seen its 2017 media-fueled peak.
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 in 2017. In fact, that would be downright ill-advised.
Sure, in 2016 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 extremely 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 there’s still plenty of debt on the books, and although gold prices modestly rebounded in 2016, the outlook for gold doesn’t look great this year.
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.
[See: 7 Stocks That Soar in a Recession.]
While AMD did ink a few surprising deals in 2016, including a licensing deal with a Chinese joint venture and a data center deal with Alphabet ( GOOG, GOOGL), the company frankly hasn’t caught up to its valuation. With a debt-equity ratio of 3.4 and Nvidia and Intel Corp. ( INTC) as competitors, a forward P/E above 45 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 roughly 50 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, and currently trade at nearly four times book value. Even if revenue jumps to $3.1 billion in sales this year as analysts expect, that number still won’t eclipse what it did as long ago as 2013. Like many shale drillers, CLR is overloaded with debt, with $6.6 billion on its balance sheet. Perhaps noting the dramatic run-up in the unprofitable company’s share price, UBS reduced its price target for the stock in late March.
[See: 7 of the Best Cheap Stocks to Buy Under $10.]
Think twice before getting caught up in any of these high-risk, overpriced stocks as you make your moves in 2017.
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7 of the Worst Stocks to Buy for 2017 originally appeared on usnews.com
