Warning! Don’t Even Consider Buying These 7 Dead-Money Stocks
Financial markets have been in turmoil for the better part of the past six months. The stock market has plunged to new lows as the Federal Reserve tightens the screws with rampant interest rate hikes. That said, this market correction has created multiple opportunities for investors to load up on stocks for the long-haul. However, at the same time, there are dead-money stocks that now look like growth-at-a-reasonable price plays, which really could be value traps poised for more losses ahead.
Dead-money stocks are those investments that have shown little to no growth over a considerable time period. These companies tend to be investments which don’t provide any sort of capital return over a long period of time. Accordingly, with little in the way of growth or capital returns, an investor’s capital may be considered “dead money” invested in such stocks.
Right now is the time for investors to be doubly careful about their investments, due to the likelihood of more losses. Therefore, investing in businesses that can effectively weather the current economic downturn and emerge stronger in the upcoming quarters is a must.
With that said, let’s look at seven dead-money stocks that are poised for substantial losses ahead.
It’s been a roller-coaster ride for biotech Ocugen (NASDAQ:OCGN) over the past couple of years. Its shares shot to the moon after it announced an agreement with India-based Bharat Biotech to commercialize the Indian coronavirus vaccine in the North American region. However, OCGN stock has since shed most of its gains after running into multiple regulatory roadblocks in commercializing Covaxin.
Ocugen still hasn’t gotten approval from The United States Food and Drug Administration to market its vaccine in the U.S. This comes at a time when the pandemic is firmly in the rear-view mirror, for most. The company has, however, found some success elsewhere. But without the U.S. market, it’s unlikely to turn heads as far as its stock is concerned. Therefore, I think this stock is nothing more than a speculative play at best.
Redfin (NASDAQ:RDFN) operates a leading online real estate marketplace, providing multiple ancillary services to complement its core business of assisting individuals to buy and sell a home. Its business was booming over the past couple of years, but the dramatic slowdown in home sales due to rising inflation and interest rates has thrown a wrench in its plans.
The problem for Redfin is its massive cost base, which will continue to weigh down its results for the foreseeable future. Its cost structure is mostly fixed, giving the company little wiggle room to navigate the current crisis. Moreover, Redfin’s debt load continues to grow at a breathtaking pace each quarter, and with a negative cash balance, it is unlikely to thrive in the current economic climate. Therefore, I expect the stock to continue trading in the red for the foreseeable future.
Peloton (NASDAQ:PTON) caught lightning in a bottle with its business growing to new heights during the pandemic. The niche-based home fitness equipment provider saw massive demand for its products as gyms closed down. However, its business is buckling in the post-pandemic world and is likely to continue losing money rapidly.
Peloton’s growth rates are slowing down while its expenses are rising aggressively. This is a recipe for financial disaster. Indeed, it’s going to take a herculean effort for Peloton to turn the ship around with its financials in deplorable shape. And while the company announced a recent partnership with DICK’S Sporting Goods, I think it will take more than such partnerships to sway investor interest meaningfully. Hence, Peloton’s business is likely poised to lose more money for the foreseeable future.
Vroom (NASDAQ:VRM) operates an e-commerce platform for buying and selling used vehicles. The company’s top line growth rocketed higher during the pandemic due to the widespread shortage of used vehicles. However, results in the past couple of quarters have shown a substantial slowdown in top-line expansion. In fact, in its second quarter, Vroom’s sales dropped by more than 37% from the prior year.
Vroom’s thin gross margins and ballooning operational expenses are major problems for the business. It’s tough to foresee a scenario where the firm could progress towards profitability in this current economic backdrop. Its business faces inflation-related cost increases, labor shortages, and supply-chain troubles, which continue to weigh down its results. Therefore, its long-term profit trajectory is up in the air, which makes VRM a stock to avoid at current levels.
Hyzon Motors (HYZN)
Fuel cell electric vehicle producer Hyzon Motors (NASDAQ:HYZN) saw its shares pummeled after being struck by fraud allegations from short sellers. The company has withdrawn operational and financial guidance, as Hyzon’s financial statements apparently cannot be relied upon. These poor disclosures lend to the credibility of short seller reports, and don’t inspire much in the way of investor confidence. Additionally, Hyzon’s operations in its European region require restructuring, which further adds to its woes.
With its reported financials deemed by the market to be essentially null and void, it’s virtually impossible to bet on Hyzon. The company’s strategies are unclear, and its stock now trades in penny stock territory. Therefore, there’s hardly an incentive to invest in the business at this time.
AMC Entertainment (AMC)
AMC Entertainment (NYSE:AMC) is a leading theatre-chain operator whose shares skyrocketed during the retail trading frenzy last year. However, its shares, for the most part, have taken a major hit over the past year, losing more than 80% of their value.
After a strong start to the year due to better-than-expected results from individual movies, the domestic box office performance has become as muted as ever. Domestic box office receipts came in significantly below pre-pandemic levels, and are unlikely to perform well in upcoming quarters. Moreover, AMC continues to burn through a truckload of cash each quarter, and has reached a point where substantial dilution will very likely be needed. Though the company could be capable of having a sustainable business if it eliminates interest costs, I think this cash burn situation is unlikely to change anytime soon.
Himax Technologies (HIMX)
Himax Technologies (NASDAQ:HIMX) provides integrated circuits used in various devices, including televisions, vehicles, laptops, and cell phones. Over the years, its business has been relatively solid, generating double-digit growth on its top line. However, supply chain issues have significantly impacted its recent results, and I think these woes are likely to persist for the foreseeable future.
Furthermore, one of Himax’s key problems is that its sales are concentrated in China. The main issue for the Taiwanese company is its overwhelming exposure to the Chinese market. Inflation is rising in the region, while growth continuing to decline, at least in part due to Chinese geopolitical issues.
To complicate matters further, China’s zero Covid 19 policy, which has resulted in entire cities locking down, is detrimental to economic growth. Therefore, HIMX stock will likely face plenty of trouble in the short-term, which will substantially erode shareholder value.
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On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines