It can be tempting to look for big winners by scraping the bottom of the barrel, but what’s left down there is typically a collection of stocks to avoid. Occasionally there’s a diamond in the rough, but the old adage “what goes down must come up” doesn’t always apply. There’s always a chance you might catch a falling knife, and in the case of these three stocks, I’d get the bandages ready.
There are some big considerations that make some of last year’s losers uninvestable again this year. The first, and most important, is the unwinding of lockdown-related tailwinds. Being stuck inside gave rise to a whole host of new habits, and the businesses that supported them were rolling in the dough. But those trends were short-lived and ultimately not strong enough to build a business on. The result has been a lack of direction at some of the pandemic’s biggest winners, which saw them plummet in 2022. Without any further clarity, these stocks look less like recovery plays and more like anchors in the choppy seas ahead.
Another factor to account for is underlying financial strength. The current environment means even the strongest businesses are having to trim the fat. It’s a terrible time to be shoring up your finances, so for those companies already on shaky ground, 2023 doesn’t look promising. Here’s a look at three stocks to avoid again this year.
One of 2022’s biggest losers finds itself again on a list of stocks to avoid. Peloton (NASDAQ:PTON) is famous for its sleek, and arguably overpriced, bicycles and high-energy exercise classes. The pandemic saw the group grow its subscriber base and extend its product categories as demand for at-home fitness reached a fever pitch. But conditions for Peloton were at an all-time high during the pandemic — people had more money to spend on extravagant bikes and subscriptions thanks to stimulus checks and they couldn’t physically get to a gym.
Now that neither of those things are true, the company’s business model looks questionable to say the least.
Under a new CEO, the group’s been working to cut costs and sharpen its proposition. To some degree, its efforts have been paying off. The group was finally free-cash positive in the second quarter. But the bottom line is still in the red and there’s a limit to how long you can continue to hemorrhage cash before the balance sheet starts to crumble.
Peloton is coming dangerously close to that limit. With a challenging year ahead likely to cause many customers to rethink their subscription costs, Peloton stock could find itself continuing to languish until the pressure eases.
First Republic Bank (FRC)
The banking sector is rife with opportunity for investors with strong stomachs, but there are also plenty of stocks to avoid.
Unless you’ve been living under a rock, you know that First Republic Bank (NYSE:FRC) is the latest in a series of high-profile banking sector shocks that have roiled markets. First Republic’s seen its uninsured depositors start to flee, and given that this makes up about two-thirds of the group’s deposits, that’s a big deal. Despite efforts to calm the markets, including a multi-bank lifeline, investors and depositors continue to snub First Republic.
There are a few reasons for this. More broadly, there’s concern that the banking sector is on the ropes as issue after issue continues to crop up. Then there’s the worry that central banks’ fast and furious interest rate hikes haven’t had time to trickle through the economy, and we’re starting to see the impacts. But more specifically, First Republic isn’t in a position to withstand much more badgering. With the dividend suspended and many questioning whether the bank can continue to operate, it’s unlikely to make any sort of impressive recovery.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) is normally one of my favorite picks when it comes to turnaround stocks, but this year it’s made the list of stocks to avoid. The group’s share price has been beaten down after it missed growth expectations and warned that advertising spending had started to moderate. With the core business under stress, investors were skeptical of its freshly minted name and newfound commitment to the foggy idea of a metaverse.
These concerns remain, and others have cropped up as well. On top of privacy concerns and content moderation issues, Meta’s also sitting on some very valuable real estate it appears to have no plans to leverage. WhatsApp and Messenger are the world’s largest messaging services and yet Meta’s done very little to monetize them. If there was some plan in the pipeline to draw on these parts of the business, investors may be able to forgive the shorter-term lack of advertising spending. Instead, we’re stuck in limbo as ad dollars dry up and Meta scrambles to find ways to harness the advertising power of its video functions.
That’s not to say this is the beginning of the end for Meta — the group’s got so much cash to play with there’s some room to maneuver. However I wouldn’t be in a rush to buy as it looks like 2023 will bring more of the same for Meta stock.
On the date of publication, Marie Brodbeck did not hold (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.