While it’s nice to think that every market idea we buy will become profitable, the harsh reality is that we’ll eventually come face-to-face with the concept of stocks to avoid. That’s not a bad thing. Much like our bodies take in the nutrients it needs and discards the stuff it doesn’t, so it is with stocks to sell.
Basically, you don’t want to hold onto highly risky enterprises indefinitely because of the resultant opportunity cost. In other words, rather than wait around for a low-probability business to turn itself around, you can direct funds toward viable opportunities. Ideally, you shouldn’t burn your cash with troubled enterprises; hence, it’s always good to pay attention to stocks to avoid. Failing that, you should make the tough decision to target going-nowhere stocks to sell.
Granted, this is a difficult topic so I’ve enlisted the help of investment resource Gurufocus.com. Specifically, I used one filter to narrow down these stocks to avoid – the probability of financial distress. Each of the names below features a distress probability of at least 90%. So, if you’re ready, here are the stocks to sell (or just not bother diving into right now).
|AHI||Advanced Health Intelligence||$0.45|
Stocks to Avoid: Riot Platforms (RIOT)
A cryptocurrency mining company, Riot Platforms (NASDAQ:RIOT) undoubtedly attracts significant attention. However, it’s time for investors to be realistic about the underlying sector. With digital assets struggling against the Federal Reserve’s commitment to control inflation through interest rate hikes, RIOT faces huge risks. Therefore, it’s one of the stocks to avoid.
It’s not just about the broader narrative. As Gurufocus.com warns, RIOT may be a possible value trap. Some “paper” metrics might look appealing based on RIOT’s trailing-year loss of over 57%. And to be fair, the company does post impressive stats, such as a cash-rich balance sheet. In addition, its three-year revenue growth rate stands at 57.4%. However, its operating margin fell 9.18% below parity. Right now, Gurufocus.com shows that its net margin plummeted to 133.39% below breakeven. Even the growth rate is questionable. In the fourth quarter of 2022, Riot only posted revenue of $60.1 million, down 34% from the year-ago quarter. Thus, it’s a candidate for stocks to sell.
Stocks to Avoid: Bit Brother (BTB)
As you might imagine from its corporate name, Bit Brother (NASDAQ:BTB) is a digital asset management group. Per its website, Bit Brother talks about fuel transformation with financial technology (fintech) and this and that. However, with various cryptos and blockchain projects imploding over the past year, BTB suffers from a credibility crisis.
I know it’s not Bit Brother’s fault what happens in its underlying sector. Unfortunately, as an investor, you can’t ignore the threat of public reputational loss. Therefore, if you don’t already have it in your portfolio, BTB represents one of the stocks to avoid. Yes, it’s down 89% in the new year alone. It could still fall more, given its 13% loss in the trailing week. If you need more confirmation, Gurufocus.com warns Bit Brother may be a possible value trap. In fairness, the company features a strong balance sheet. However, its three-year revenue growth rate sits at 64.9% below breakeven. As well, its operating and net margins rate horribly into negative territory. It’s just one of the stocks to sell.
Stocks to Avoid: Canoo (GOEV)
Similar to many other electric vehicle upstarts, Canoo (NASDAQ:GOEV) features a loyal fanbase. If I may be a little bit politically incorrect, if spouses were committed to each other like Canoo shareholders are committed to struggling enterprises, our country would probably be much happier. As it stands, it’s an upside-down world. GOEV gets sustained love, committed partnerships do not.
While some public securities received a speculative boost in the new year, GOEV did not. In fact, as of this writing, GOEV plunged nearly 44%. And in the past 365 days, it gave up a staggering 86% of equity value. I suppose that speculative fervor could lift GOEV out of the blue. However, no one knows when such an event would materialize. Thus, it’s one of the stocks to avoid. For further confirmation, Canoo effectively represents a pre-revenue enterprise that continues to bleed cash. As well, both its return on equity (ROE) and return on asset (ROA) sit deep in negative territory. Plus, it’s a literal penny stock, making it an all-around troubled entity.
Specializing in Earth-observation satellites, Satellogic (NASDAQ:SATL) seems a compelling enterprise. After all, Morgan Stanley analysts reminded us that the underlying space economy could generate revenue of $1 trillion or more in 2040. But as with any new endeavor, there will be winners and there will be losers. Sadly, I believe SATL symbolizes one of the stocks to avoid.
Let’s look at the chart for starters. Since the beginning of the new year, SATL gave up 21% of its equity value. Not enjoying the positive sentiment rippling throughout the equities sector early in 2023 imposes a bad look for Satellogic. Moreover, in the past 365 days, SATL cratered to the tune of almost 59%.
To be fair, from a financial perspective, Satellogic offers some positives, such as a strong cash-to-debt ratio. Then again, its Altman Z-Score sits 20.95 below parity, indicating substantial distress. Further, both its operating and net margins fell into the abyss. If that wasn’t enough, the market prices SATL at a trailing multiple of 37.56, which ranks as extremely overvalued. Therefore, it’s one of the stocks to sell.
Cazoo Group (CZOO)
An enterprise that many Americans may not be familiar with, Cazoo Group (NYSE:CZOO) is an online car retailer. Based in London, England, Cazoo’s customers suffer from a familiar headwind: blisteringly high inflation. Further, with the Bank of England raising interest rates, households struggle mightily across the Atlantic. So, that’s one reason CZOO dropped nearly 37% of equity value since the start of the year.
Another comes down to cost structures. Basically, it’s cheaper to buy a used car via private-party transactions. Further, the convenience of online car shopping invariably carries a premium. Unfortunately, consumers aren’t looking to pay anything more than they must. Fundamentally, this dynamic makes CZOO one of the stocks to avoid.
Making matters worse, Cazoo features a weak, distressed balance sheet. As well, its operating margin and net margin sit 58% and 66.43% below parity, respectively. That’s just not going to cut it. No wonder, then, why CZOO hemorrhaged 96% over the trailing year. Respectfully, it’s one of the stocks to sell.
Bird Global (BRDS)
Based in Miami, Florida, Bird Global (NYSE:BRDS) represents a micro-mobility company. Specifically, Bird specializes in distributing electric scooters designed for short-term rentals. It has the right idea in terms of implications for climate change and the electrification of movement. Sadly, though, the business doesn’t have any traction.
About the one positive I can say regarding its price chart is this: on a year-to-date basis, BRDS only slipped less than 1%. However, in the past 365 days, the security plunged by almost 95%. Since its first day trading in the public arena, BRDS fell nearly 98%. Also, it’s a literal penny stock, trading at 20 cents a pop at the time of writing. Unfortunately, a delisting will be in the cards unless Bird does something dramatic. Outside of a reverse split, I just don’t know what else substantively can be done. For one thing, Bird features a distressed balance sheet. And its profit (operating and net) margins sank deep into negative territory. You gotta call it like it is – it’s one of the stocks to avoid.
Advanced Health Intelligence (AHI)
On the surface, Advanced Health Intelligence (NASDAQ:AHI) initially seems like a compelling enterprise. Per its website, Advanced Health offers biometric-enabled, data-driven health solutions. Then it goes on to say something about acceleration and platforms and cohort risk modeling. Bluntly, when a company can’t explain what it does in simple terms right off the bat, I get annoyed.
Having said that, it appears quite a lot of investors are annoyed with AHI as well. True, since the Jan. opener, it gained almost 5% of its equity value. However, that won’t make up for the trailing-year loss exceeding 49%. And since making its public market debut, AHI plunged over 89%. Just from that, it’s one of the stocks to avoid.
Financially, AHI is a mess. For instance, its Altman Z-Score of 8.78 below parity reflects significant distress. In addition, it features a three-year EBITDA growth rate of 35% below breakeven. Not surprisingly, both its operating and net margins fell into basically incalculable magnitudes of negativity. It’s facing a delisting and therefore, it’s one of the stocks to sell.
On the date of publication, Josh Enomoto 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.