September kept up with its tradition of being a tricky month for investors. The choppiness in the market continues to spook investors, compelling them to optimize their portfolios effectively. Furthermore, market experts are making optimistic predictions. So, it’s even more critical for investors to discern the gems from the duds and pinpoint the stocks to avoid.
Most recently, market researcher Ed Yardeni shared some hope on CNBC, hinting that good times might be just around the corner for stock market investors. He has spoken about a possible year-end rally. This is thanks to companies hinting at upcoming reports of relatively strong earnings and inflation taking a chill pill.
Therefore, it’s imperative to take a close look at your investment bag now. Figuring out which stocks to avoid might be the ticket to making the most of the upcoming potential market lift.
Armour Residential REIT (ARR)
Navigating the relatively unsteady financial terrains, Armour Residential REIT (NYSE:ARR) presents a rather precarious portrait of unsustainable dividend payouts along with daunting valuations.
The company, known for its investments in residential mortgage-backed securities, is dangling on the brink of fiscal uncertainty. Specifically, its dividends are gobbling up over 100% of distributable earnings of late. Naturally, this scenario presents a potential course toward imminent dividend recalibrations. This is especially true when mirroring the backdrop of rising funding expenses and shrinking net interest margins.
Moreover, the REIT’s assurance of stable dividends and the enactment of a five-to-one reverse stock split are feeble attempts to lure investors. Interestingly, the company’s bottom line has crumbled under the weight of rising inflationary pressures. Consequently, a wary approach is important, considering the company’s alluring yet potentially misleading forward dividend yield in excess of 28%.
Beyond Meat (BYND)
Beyond Meat (NASDAQ:BYND), a well-known player in the plant-based food industry. The company is facing a rocky road ahead with multiple weaknesses impacting its sustainability.
A concerning 31% year-over-year (YOY) drop in net revenues was reported in its Q2. Along with a 23.9% YOY drop in the volume of products sold, this highlights its struggles with maintaining consumer interest and holding market share.
Additionally, BYND reported a notably low gross margin of just 2.2% in the same quarter, pointing to major cost challenges. While Beyond Meat reduced inventory for four consecutive quarters because of some operational efficiency, it may also suggest issues with demand forecasting and operational management. Moreover, the company’s strategy of partnering with fast-food chains brings its own set of risks, with Beyond Meat closely linked to the performance of its partners.
Mullen Automotive (MULN)
EV upstart Mullen Automotive (NASDAQ:MULN) has witnessed its shares continually plummet.
As it looks to navigate a quagmire of production dilemmas and daunting capital requirements, the company finds itself teetering amid skepticism. In particular, its delivery numbers occasionally barely scrape double digits. It reported a staggering $53.8 million operating expense in its most recent quarter.
Additionally, the Mullen saga is further complicated by a 1-for-9 reverse stock split and legal battles against dealer brokers, accusing them of stock price manipulations. A recent letter to its shareholders arguably did little to douse the flames of investor unease. It shed light on production milestones, delisting avoidance strategies, and the acquisition of new commercial orders. However, until these plans come to fruition, it’s tough to bet on MULN stock again.
Lordstown Automotive (RIDEQ)
In a peculiar plot twist, embattled EV player Lordstown Automotive (OTCMKTS:RIDEQ) saw its remaining assets post-Chapter 11 being scooped up by former CEO Steve Burns with a singular, qualifying bid of $10 million.
LAS Capital, Burns’ private equity company, bought out remaining RIDEQ shares. LAS Capital has no direct link with RIDEQ. However, former Lordstown CFO Julio Rodriguez is purportedly engaged with LAS Capital, being regarded by sellers as an indirect managerial figure within the entity.
Despite morphing into a penny stock in May, current investors might glimpse a sliver of a resurgence, courtesy of its debt-free position. While its stock price may present a potential value opportunity, the looming prospects for the stock are teetering on the precipice at this time.
C3.ai (NYSE:AI) is up more than 120% year to date (YTD) and has effectively navigated through highs and subsequent corrections.
Q1 results showed a robust $72.4 million in sales, with a promising 85% stemming from subscriptions. Also, it secured 12 generative AI agreements and more than 140 prospective opportunities.
However, not everything is rosy with its financials. Postings show a negative free cash flow of $8.9 million, delaying its profitability target to April 2024 due to intensified investments in generative AI. This stand in stark contrast to its competition with the likes of Palantir Technologies. The latter only boasted a 5.25% net profit margin in the second quarter. But it also demonstrated a diversified client base and similar growth rates, albeit being a more mature firm. C3.ai’s potential presents itself as a long-term generative AI play. Yet, the immediate financial turbulence and profitability concerns underscore a cautious approach toward its stock.
GameStop (NYSE:GME), once the darling of meme stock enthusiasts, now teeters on an uncertain path, prompting wary investors to turn away.
With the appointment of billionaire and active investor Ryan Cohen as CEO in late September, the firm has embraced a stark ethos of “extreme frugality”. While the merits of cost-cutting, especially in the current economic backdrop, are undeniable, the shift away from immediate operational advancements raises questions about its future. In line with its cost-cutting exercises, the firm experienced layoffs and employee walkouts, lowering labor costs considerably.
However, a pivot to online-only game sales brings the company’s limited revenue channels into precarious territory. The competition is incredibly tough. GameStop’s future hangs in the balance. Investors who cling to the hope of a short squeeze may need to reevaluate the tangible prospects of holding onto GME stock.
The social media landscape, notably Snap (NYSE:SNAP), has been witnessing an alarming sequence of events. Performance metrics from 2023 sketch a bleak canvas for the company.
Historically, from 2020 to 2022, investors erroneously looked towards Snapchat’s earnings as an even amid its recurrent underperformance compared to its digital counterparts. Yet in recent times, the platform has grappled with relatively static sales and an unsettling rise in loss trends, planting seeds of fiscal skepticism. With it reporting a substantial $769.6 million in operating losses in the first half of the year, Snapchat’s pathway to profitability appears tumultuously uncertain.
In an internal management letter, CEO Evan Spiegel laid out some aggressive plans for 2024. They aim to pump up advertising revenue by over 20%. However, with the challenging economic backdrop, the firm’s mounting losses, and a stock price in steep decline, it’s tough to wager on SNAP stock at this time.
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.