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All Contents © 2019The Kiplinger Washington Editors
By Dan Burrows, Contributing Writer
| November 28, 2017
“A rising tide lifts all boats” is a popular Wall Street saying, but it’s not always true. The market is hitting all-time highs seemingly every other day, but you can bet that if a stock springs a leak, it will sink. As broad-based as the market's gains have been this year, investors looking for stocks to buy will be hard-pressed to outperform an index fund without being just a little picky.
That is easier said than done, of course. After all, one of the first places value investors look for bargains is beaten-down stocks. But separating stocks that are just misunderstood from the ones that are cheap for a reason is no simple task.
We’re here to help. A look across the market landscape reveals no shortage of stocks that look like bargains, but aren't worth buying now. Some of these were once the market’s more durable names, while some of these are very recent flashes in the pan. Many of these names are famous enough that the uninformed investor could get suckered into taking a flyer. Don’t do it.
Here are seven of the worst stocks to buy now. Heavy competition, business-specific problems and tarnished reputations make these well-known companies hazardous to your portfolio’s health.
Data is as of Nov. 27, 2017. Analyst ratings are from Zacks Investment Research. Stocks are listed in alphabetical order. Click on symbol links in each slide for current share prices and more.
Year-to-date performance: -69%
Analysts’ opinion: 2 strong buy, 2 buy, 8 hold, 0 underperform, 2 sell
Pretty much nothing has gone Blue Apron’s (APRN, $3.07) way since its ballyhooed initial public offering in June, which Bloomberg News called the “IPO Bust of the Decade.” The meal-delivery company laid off 6% of its workforce in October, a scant four months after becoming a publicly traded company.
The biggest blow, however, was delivered by Amazon.com (AMZN). The e-commerce giant’s June announcement that it would buy Whole Foods was an ominous precursor to the IPO. But a July report that Amazon had filed for its own meal-kit trademark made it clear that Blue Apron will have a monster competitor in its industry.
APRN shares priced at $10 when the company went public. It now fetches just about $3 – and there’s little on the horizon to suggest the company can turn around anytime soon. Analysts at William Blair, who rate shares at “Market Perform” (equivalent of hold), expect the stock to be range-bound for now. With Amazon lurking in Blue Apron’s waters, that could prove to be too optimistic.
Courtesy Proshob via Wikimedia Commons
YTD performance: -27%
Analysts’ opinion: 5 strong buy, 0 buy, 18 hold, 1 underperform, 3 sell
Chipotle Mexican Grill (CMG, $274.52) has struggled to regain customers’ trust ever since its well-publicized outbreaks of food-borne illnesses in 2015. And in the age of social media, which serves up constant reminders of Chipotle’s food-safety struggles – it’s not a sure bet that it ever will.
The company suffered another outbreak of norovirus over the summer that sickened 133 customers. In mid-November, Supergirl actor Jeremy Jordan claimed on Instagram that he “almost died” after eating at Chipotle.
Even analysts who think Chipotle might eventually come back from a 65% walloping since August 2015 figure it will take some time. “We project sales recovery will remain challenging because during the time Chipotle struggled to alleviate consumers’ concerns about food safety other quick-casual and QSR restaurants worked to improve food quality and value, replacing Chipotle’s position in a number of consumers’ consideration sets,” say Stifel analysts, who rate shares at “Hold.”
YTD performance: -10%
Analysts’ opinion: 1 strong buy, 1 buy, 8 hold, 1 underperform, 0 sell
Fitbit (FIT, $6.62) shares have been on a downswing for more than two years as analysts and investors have come to accept that the market for fitness trackers is a niche one at best. The stock has lost 86% of its value since August 2015, including a 10% dip for the year-to-date.
Fitbit is pinning its hopes on the smartwatch market, where shipments are expected to increase by 20.4% vs. last year, according to market researcher IDC. Fitbit launched its first smartwatch, the Ionic, ahead of the holiday selling season, but consumer reviews have so far been mixed.
Analysts at Stifel say the success of the smartwatch over the next month is crucial. “Consumer response during holiday remains key, and we continue to view the success of the smartwatch launch as a lynchpin for Fitbit’s potential for a return to profitability,” say the analysts, who rate shares at “Hold.”
It’s a credible strategy, but Fitbit is going up against competition from Apple (AAPL), Samsung (SSNLF), Lenovo (LVNGY) and a host of other giant consumer electronics firms.
YTD performance: -60%
Analysts’ opinion: 1 strong buy, 0 buy, 14 hold, 0 underperform, 1 sell
JCPenney (JCP, $3.35) is one of several department stores beaten down by the rise of Amazon. Although revenues have been fairly stable since 2015 after tumbling for four consecutive years, annual profitability remains a struggle. True, the company recorded positive net income for 2016, but only $1 million of it. Since fiscal 2011, the retailer has lost $3.6 billion. That has ramped up JCPenney’s debt, which now sits at $4.5 billion, versus just $185 million in cash.
The retailer delivered a pleasant surprise for the third quarter when sales fell less than analysts expected and its net loss wasn’t as wide as feared. But it’s too soon to give the all-clear sign. JCPenney finished last quarter with approximately 875 stores, compared to 1,014 stores in the prior-year quarter.
As they say on the Street, you can’t cut your way to growth.
YTD performance: -58%
Analysts’ opinion: N/A*
Sears Holdings (SHLD, $3.90) has been slowly circling the drain in 2017. A quarter-century of pressure first from the likes of Walmart (WMT) and Target (TGT), and now courtesy of Amazon, has turned the once-iconic American retailer into a money pit.
Sears started 2017 with a plan to close 150 stores, including 108 Kmart locations, then in early November added another 63 to the list. To stay afloat, the company tapped $1 billion in credit around the start of the year, then secured another $200 million credit line in July. The retailer also was forced to sell its Craftsman tools business in July in a deal that could be worth $900 million, and announced a $1 billion cost-cutting effort in February.
The most recent sign of decay: Longtime partner Whirlpool (WHR) said in October that it will no longer sell its washers and dryers at Sears, ending a 101-year partnership with the appliance giant.
The struggling retailer’s revenue has fallen annually since 2008, and Sears has lost more than $10 billion since 2011, the last year that it was profitable. Couple that with a massive $4 billion in debt versus $212 in cash and investments, and it’s difficult to justify a bet on a Sears bounce-back.
*No analysts tracked by Zacks are currently monitoring Sears.
YTD performance: -47%
Analysts’ opinion: 4 strong buy, 0 buy, 17 hold, 0 underperform, 7 sell
Investors had high hopes that Snap Inc. (SNAP, $13.06) – the parent company of the Snapchat social networking and messaging service – would follow in the footsteps of Facebook (FB).
It hasn’t worked out that way, at least so far. Shares were priced at $17 at the time of its March initial public offering. They closed at $24.48, with gains of 44% on that first day of trading. Since then? It hasn’t gone well. Facebook has repeatedly mimicked popular Snapchat features and applied them to its Facebook, Instagram, WhatsApp and Messenger apps, cutting into Snap’s growth.
As a result, the stock currently trades around $13 a share, and disappointing user growth and competition could make things worse.
“We believe Snap will continue to struggle,” write UBS analysts, who rate the stock at “Sell.” “User growth is tepid, while competing against (Google), FB & AMZN is likely going to prove difficult.”
YTD performance: +34%
Analysts’ opinion: 1 strong buy, 0 buy, 17 hold, 1 underperform, 7 sell
The micro-blogging network has failed to live up to its promise. Indeed, when Snap went public, the question was whether it would prove to be the next Facebook – or the next Twitter (TWTR, $21.82).
The social media platform has assumed a central place in the national conversation, but as a place for advertisers to reach people, it’s really not all that big compared to Facebook or Alphabet’s (GOOGL) Google platform. Twitter’s growth has stalled out at about 330 million monthly users. Google and Facebook, however, each have several billion users across their various services.
That smaller scale – and less robust data-gathering and analyzing systems – makes it hard for Twitter to make money selling ads against users’ tweets. Analysts at Stifel, who rate shares at “Sell,” note that revenue growth is lagging as Twitter struggles to get big commitments from advertisers.
“In addition, we believe emerging digital advertising platforms like Instagram, Snap, and Pinterest could prove to be more formidable competition,” the analysts say.