Stay away from these stocks.
According to Warren Buffett, there are only two rules of investing. Rule No. 1 is never lose money. Rule No. 2: Never forget rule No. 1. It may sound trite, and losing money in the stock market is unavoidable at times, but minimizing your losses is vital for a simple reason: just returning to break-even becomes a herculean task. On a loss of 20 percent, you need a 25 percent return to break even. And after losing 50 percent, you’ll need a two-bagger! With that in mind, here are seven of the worst stocks to buy for 2018. Could they go up? Anything’s possible. But the risk isn’t worth it.
Sears Holdings Corp (Nasdaq: SHLD)
The once-mighty Sears, which pioneered the mail-order catalog in the 1800s, thrived for more than a century. Sadly, the 21st century will almost certainly be its last. After hedge fund manager Eddie Lampert took over in 2005, he took a healthy business and slashed its costs, shunning reinvestment and eventually beginning a dozen-year process of pawning off assets to his own hedge fund. Mismanagement put Sears in a state of unsustainable debt and mounting losses; stuck in an endless cycle of asset sales and store closures just to keep the lights on, the only way SHLD beats the market going forward is if it’s bought out. A Sears bankruptcy looks likelier.
Riot Blockchain Inc (RIOT)
This won’t end pretty: RIOT is arguably the single-worst stock to buy for 2018. While shorting RIOT stock is the kind of risk individual investors should steer away from, simply not buying RIOT is more than wise. Why? Remember back in the dot-com boom when companies would add a “.com” to their name and shares would gain 20 percent overnight? That’s a perfect analogy to RIOT, which was, until several months ago, a biotech stock, ticker BIOP, named Bioptix. In October Bioptix decided to rebrand, buying a 12 percent stake in an obscure Canadian cryptocurrency exchange, renaming the company and changing the ticker. Shares soon shot from $4 to $40.
Guess?, Inc. (GES)
This once-iconic clothing company has struggled in recent years while battling a two-headed monster: the fading popularity of its brand and the so-called “retail apocalypse” led by online shopping and Amazon.com, Inc. (AMZN). As a result, revenue has been falling at an average annual pace of 3.8 percent a year for the last half-decade. EPS has declined by 10 times that annual rate — nearly 40 percent yearly — over that time. Why GES has been boosting its dividend each year since 2014 is anyone’s “Guess,” but it’s currently unsustainable and will likely be slashed, making it, too, one of the worst stocks to buy for 2018.
Nordstrom, Inc. (JWN)
Noticing a theme here? That’s right, retailers are in the doghouse. Picking lousy stocks isn’t brain surgery, and sometimes it’s as simple as finding a sector under fire and drilling down to find some of the more troubled names. There are retailers more doomed than Nordstrom (i.e., Sears), but JWN is a once-impressive business in decline. The stock, which hit all-time highs as recently as 2015, is under pressure from decelerating sales growth and falling margins, while a debt-equity ratio of 3.2, especially in a rising-rate environment, doesn’t bode well either. Perhaps its fat, 3 percent dividend should be used to pay off creditors.
Watsco Inc (WSO)
Watsco is a solid, profitable, 72-year-old American industrial company that doesn’t face some of the glaring problems common to other companies on this list. So why include it among the worst stocks to buy for 2018? Because despite its sound footing, WSO stock seems plainly overvalued, and as such serves as a sort of proxy to remind investors that there is such a thing as a decent business trading for a less-than-decent price. An air conditioner manufacturer with estimated earnings per share growth around 10 to 11 percent shouldn’t trade at 30 times earnings, and is unfortunately priced to underperform.
Pegasystems Inc. (PEGA)
Pegasystems, is an enterprise software company that makes customer relationship management applications, will likely either be a home run or a bank breaker in 2018. While PEGA generates recurring revenue that way, its contract-based business can be lumpy. And yes, PEGA is growing and profitable, but growth is decelerating, and with shares trading at more than 80 times earnings and a forward P/E of 61, there are many better values on Wall Street. Should 2018 bring some of the stock market’s typical volatility, high-priced growth stocks like PEGA may suffer disproportionately. Incidentally, its 0.3 percent dividend isn’t much use to either income or growth investors.
Snap Inc (SNAP)
Snapchat insiders pulled off an entirely legal swindling of public investors with the March 2017 Snap Inc IPO. Euphoric public markets ignored the fact that Instagram Stories, a Snapchat copycat owned by arch-rival Facebook (FB), was growing rapidly at Snapchat’s expense. Launched in August 2016, Stories already has nearly double (300 million) the daily active users Snapchat does (178 million). Meanwhile, Snapchat’s daily active user growth has rapidly decelerated to just 17 percent, essentially in line with Facebook’s at 16 percent, despite FB’s massively larger scale (1.37 billion). Additionally, SNAP shares are non-voting, giving shareholders zero power. Unlikely to profit for years, if ever, SNAP is no long-term winner.
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7 of the Worst Stocks to Buy for 2018 originally appeared on usnews.com
