Investors would be best served by reducing or eliminating their positions in the battered stocks discussed here. The markets have faltered somewhat over the past month, essentially trading sideways. The lull provides an opportunity for pair investors to pare their exposure to weak equities.
Two of the three stocks discussed below legitimately are at risk of failure in the next few years. The other is facing its worst performance in decades. All three are worth selling at this point.
Readers should note that the electric vehicle sector continues to be heavily represented here. Many firms in the sector are struggling. Overall EV sales continue to rise but at a lower pace. Slower growth is wreaking havoc on weaker EV firms. The other firm operates in the consumer discretionary sector and faces a multitude of issues social and otherwise.
Fisker (FSRN)
Fisker (OTCMKTS:FSRN) has to be one of the most disappointing EV stocks of the last few years. Investors are now aware that the company is at serious risk of complete failure. There are a handful of narratives that could be discussed in relation to its downfall. Let’s look at a few of them and why they suggest investors should leave Fisker alone completely.
Within the last few days it’s become apparent that Fisker may have stiffed engineering firms responsible for the development of two of its vehicles. Those claims have led to lawsuits against Fisker in addition to at least 30 lemon law lawsuits in connection to its Ocean SUV.
The lawsuits filed by Bertrandt AG allege that Fisker stopped paying its engineering bills in the weeks following the debut of two prototype vehicles last August.
Those allegations add more trouble to the firm already facing serious claims regarding the safety of its debut Ocean SUV. The company’s Austria unit recently began insolvency proceedings, suggesting that the parent company may soon file for bankruptcy protection proceedings.
Lucid (LCID)
Lucid (NASDAQ:LCID) looks like a strong EV stock when compared to Fisker. Don’t be fooled. The company continues to face substantial difficulties. Thus, investors shouldn’t realistically believe that its shares will rise in value throughout the remainder of 2024.
While lucid doesn’t appear at risk of immediately going broke it isn’t that much better than Fisker. Lucid’s first quarter earnings report shows that the company has more than $5 billion in liquidity. Unfortunately, Lucid also reported a net loss in excess of $680 million dollars during the first quarter. The company clearly has enough cash on hand to continue operations and to continue producing cars. However, a realistic investor has to ask themselves at what price?
Lucid will likely produce somewhere on the order of 9,000 vehicles this year. That represents a 50% increase over 2023 levels. As good as that may sound, consider this: Lucid incurred a net loss of $3.01 billion in delivering just over 6,000 vehicles in 2023. That equates to a net loss per vehicle in excess of $516,000. Investors have to legitimately ask themselves whether it makes any sense to direct their capital toward such a business endeavor.
Starbucks (SBUX)
Starbucks (NASDAQ:SBUX) stock continues to struggle. Realistically, it will take a long time before Starbucks fails, if ever. the chances of the company going broke anytime soon or effectively nil. However, investors really should consider getting rid of SBUX shares or avoiding them entirely.
The company just reported its worst performance in decades which will not help as the company struggles on the management front. Starbucks is currently run by its third CEO in the post Howard Schultz era. Laxman Narasimhan has inherited a company which is a shadow of its former glory in many respects.
Starbucks is no longer the leader in coffee. The company transitioned to a small shop, drive through format that faces many challengers. Meanwhile, the company has been slow to adapt to trends including recently popular drinks including boba.
Don’t be surprised if the current CEO finds himself on the outside soon. The company continues to struggle in finding a leader to replace Schultz. Failure isn’t a risk in the near term but the company’s continued troubles suggest it is not a good idea to invest.
On the date of publication, Alex Sirois 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.