Thursday, February 22, 2024
Stocks To Sell

3 Stocks to Sell Before the Dot-Com Crash 2.0

Source: InvestorPlace unless otherwise noted

Are we really back in a bull market? Not everyone is convinced. Many analysts, economists, and market commentators say the rally in equities in recent weeks is yet another bear market bounce, and we will soon see stock prices test new lows. Some commentators, such as famed investor Michael Burry, say that valuations remain too high and that we’re only about halfway through the market crash that’s needed to bring prices back to more reasonable levels. He thinks the current rally will lead to an epic crash. So far in 2023, tech stocks have led the rally. Many technology companies have seen their share prices rise 30% or more since the start of January. These were the same stocks that fell furthest last year during the market rout. Should investor sentiment sour or an unexpected event sends markets lower, it’s safe to assume that technology stocks could again lead on the way down. In fact, some extreme pessimists are predicting another dot-com crash on the order of the one experienced in 2000 that lasted for three long years. Could it happen? Time will tell. But here are three stocks to sell before any dot-com 2.0 occurs.

Ticker Company Price
CHWY Chewy $47.89
HOOD Robinhood Markets $10.06
DOCU DocuSign $63.64

Stocks to Sell: Chewy (CHWY)

Remember Pets.com? The online pet supply retailer that became emblematic of the overvalued internet stocks that preceded the dot-com crash back in 2000? Well, we have another version of it today in Chewy (NYSE:CHWY), the Plantation, Florida-based online retailer of pet food and various pet products. Like Pets.com, Chewy had a moment in the sun with investors. As pet ownership soared during Covid-19 lockdowns, so too did the price of CHWY stock, which more than tripled to $126 a share in 2020 and early 2021. Since then, the share price has crashed hard, having fallen 61% to trade at $46 today.

Like a lot of stocks that were popular during the pandemic, Chewy has had to contend with slumping sales and declining users as the economy reopened. Analysts at investment bank Morgan Stanley recently lowered their price target on CHWY stock to $31 a share and noted that the stock could fall more than 20% from recent levels. Chewy turned a profit for the first time in last year’s third quarter, and it plans to introduce pet insurance and a private-label wellness brand later in 2023. However, none of these developments have inspired investors to buy the stock. Chewy is definitely a stock to sell before the dot-com crash 2.0.

Robinhood Markets (HOOD)

One of the companies most associated with both the meme stock and cryptocurrency craze of the last few years, online brokerage Robinhood Markets (NASDAQ:HOOD) is likely not a stock any investor wants to have in their portfolio should the markets crash. Since its market debut in the summer of 2021, during the pandemic’s trough, HOOD stock has cratered 70% to now trade at $10 a share. The company that offers commission-free trades to its customers through a mobile app continues to endure negative press for hyping volatile meme stocks such as GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC) which left scores of retail investors poorer.

Robinhood’s practice of engaging in “payment for order flow” has also attracted scrutiny from regulators and politicians in Washington, D.C., as well as customer lawsuits. However, the most damaging to the company has been that users continue to abandon its trading platform in droves. Robinhood’s number of monthly active users declined more than 10% last year, and average revenue per user fell 61% to $53 from $137. The crypto winter that has seized the market for digital coins and tokens following the $8 billion collapse of the FTX exchange has led to further erosion of Robinhood’s user base and finances. This is a stock to steer clear of or sell as quickly as possible.

Stocks to Sell: DocuSign (DOCU)

DocuSign’s (NASDAQ:DOCU) electronic contract management business seemed perfect for a world in which everyone worked remotely. DOCU stock flourished and rose nearly 300% between March 2020 and September 2021. But as people have returned to work in person, the company’s fortunes have faded, and its share price has crashed 50% in the last 12 months to now change hands at $65. The stock is down more than 80% from its all-time high. While the stock has fallen far, it could slump further should we experience yet another broad-based dot-com crash.

eSigntures, while still available, are not nearly as popular as they were when nearly all work was virtual in the early days of the pandemic.

Also hurting DocuSign is the fact that the San Francisco-based company is unprofitable and continues to lose customers. The company’s dollar-based net retention rate declined to 108% in its most recent quarter from a peak of 125%. That indicates DocuSign is losing customers or finding it more challenging to extract additional sales from existing customers. Not good. The company has $975 million of cash on hand against $837 million of debt for a net cash position of $138 million. While being cash positive is good, that’s not much money to fund DocuSign’s operations should markets crash or we enter a prolonged recession. This makes DOCU a stock to sell before the dot-com crash 2.0.

On the date of publication, Joel Baglole held a long position in MS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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