Stocks decline for any number of reasons. It’s impossible to predict those declines all the time but relatively easy most of the time. Avoid investing in stocks that represent weak companies. Anytime a business’s prospects are weak, the stock should also be weak.
That’s obvious advice but advice that has proven unreliable of late. Special purpose acquisition companies (SPACs), meme stocks and others have soared despite poor underlying business fundamentals.
That makes such stocks especially dangerous. Investors see meme stocks jump by double digits overnight and suddenly decide to pull the trigger and buy. Then the investment sharply crashes in value days later. It’s a vicious cycle that repeats over and over and is increasing in frequency as social media influences the stock market.
The best thing to do is to cash out your investment in the stocks discussed below. That’s true whether you’re currently in a winning position or losing because they’re almost guaranteed to fall further.
Nikola (NKLA)
Nikola (NASDAQ:NKLA) has long been a stock to avoid. It was supposed to be one of the electric vehicle (EV) manufacturer challengers to Tesla (NASDAQ:TSLA) when it emerged back in 2020. The company IPO’d via a SPAC and was flying high.
Those hopes were dashed just as quickly by beginning with a report from Hindenburg Research levying strong allegations towards CEO Trevor Milton.
That saga has been told and retold. The company has since pivoted into hydrogen-powered EV drivetrains. Some want you to believe the company has course corrected and it has to some degree. The company delivered 40 of its hydrogen-powered EV semi trucks during the last quarter, up from 31 a year earlier. The problem, though, is the company continues to lose mountains of money. The prospect of profitability is not even a consideration at the moment. Shares trade for 50 cents and offer almost no stability. The potential for them to crash out is very high and they should be avoided.
Shopify (SHOP)
Realistically speaking, Shopify (NYSE:SHOP) stock has already crashed out. It isn’t about to drop quickly; it already has.
Shares fell off a cliff on May 8 when the company issued a terrible earnings report. The primary driver sending share prices from $77 to $58 was a surprise first-quarter loss. Wall Street had been expecting earnings of 9 cents per share so when the company reported a 21-cent loss, shares plummeted. The company blamed the loss on fees incurred from the sale of its logistics business.
Whatever the cause, the markets continue to be forward-looking. Unfortunately, Shopify gave uninspiring guidance for the second quarter. Wall Street was looking for nearly 20% top-line growth in Q2 but Shopify is projecting mid- to high-teen percentage growth.
Shopify stock has been all over the place during 2024. It is very volatile overall. It peaked above $90 and is currently below $60. It is far too dangerous and the slightest bit of negative news moving forward promises to send it plummeting again.
C3.ai (AI)
C3.ai (NYSE:AI) is my pick for the most overhyped artificial intelligence (AI) stock of the last year and a half. The company continues to be mentioned with the ranks of Nvidia (NASDAQ:NVDA), Advanced Micro Devices (NASDAQ:AMD), Microsoft (NASDAQ:MSFT) and the true winners of the AI boom. However, the company’s continued losses combined with recent earnings make it particularly dangerous at the moment.
C3.ai is currently getting a lot of attention for its fiscal fourth-quarter earnings report that came out on May 29. It showed revenues grew by 20% during the period but also showed subscription revenue jumping by 41%, constituting 92% of overall revenues.
I think the relatively strong report is going to cause some investors to overreact with bullishness. Those investors will continue to follow the narrative that C3.ai is amongst the very best enterprise AI stocks. Those same investors will also ignore the fact that C3.ai produced more than $72 million in net losses during the period, up by $6 million on a year-over-year basis.
GameStop (GME)
GameStop’s (NYSE:GME) most recent resurgence should serve as proof to investors that the company doesn’t care. The stock has again spiked in price following the return of Roaring Kitty to social media. The influencer was a central figure in the meme stock rally of 2021.
While his influence remains very strong it’s also clear that GameStop is entirely unpredictable. The company just completed an at-the-market offering worth $933.4 million. The news served to temporarily spike prices, which is highly unusual given that at-the-market offerings are not a good sign overall.
GameStop executives must recognize that there is no logic behind all of the recent movements that have sent share prices higher. Those executives are simply looking to make money by any means possible. That’s why the company issued all of those additional shares.
The company noted that the proceeds would go toward general corporate purposes. Of course, if you have a captive audience as uninterested in business fundamentals as GameStop investors, why not take advantage of it? More sensible investors will understand there is no real value in investing in the video game retailer.
Lucid Group (LCID)
There are many pieces of information on Lucid Group (NASDAQ:LCID) that should serve as warnings to avoid the stock. Perhaps none is more jarring than the abrupt decline in delivery projections.
Not long ago, the company projected that it would be delivering 90,000 vehicles in 2024. Today, the company has slashed that projection to 9,000.
To say that some manufacturers in the EV space have underdelivered would be a serious understatement. Lucid is chief among those firms. The company is staggeringly bad from a fundamental perspective.
Lucid produced a net loss in excess of $680 million in the first quarter. The company lost more than 3$ billion in 2023.
The losses per vehicle produced are truly staggering. Lucid loses hundreds of thousands of dollars on each vehicle manufactured because it simply doesn’t sell at nearly the volume required to make the business succeed. There is no realistic reason to be optimistic about Lucid’s prospects at the moment and for that reason, investors should be worried instead.
Upstart Holdings (UPST)
Upstart Holdings (NASDAQ:UPST) stock has been substantially devalued in 2024. While the company has shown some improvement, it remains very dangerous and has significant fundamental flaws.
The company is one of many aiming to revolutionize the personal lending space by leveraging advanced algorithms. It makes all the promises you would expect to hear out of a pitch from such a company. AI is going to make its lending practices fairer and more accessible.
To the company’s credit, it grew the top line by 24% in the first quarter. And Upstart did manage to cut losses in half. However, losses remain large at $64.6 million.
I seriously wonder what will happen to Upstart should anything go wrong. There’s plenty of reason to believe that something could go wrong. Credit card debt is staggeringly high. Individual consumers believe they can simply borrow, borrow and borrow some more. Companies like Upstart are built on that premise. However, the company continues to lose money so despite growth and declining losses there is plenty of potential for something to go abruptly and seriously wrong.
Beyond Meat (BYND)
Beyond Meat (NASDAQ:BYND) continues to head in the wrong direction. Any reasonable investor can see the stock represents substantial risk overall.
All one has to do is look at the most recent earnings report in order to come to that conclusion. Revenue fell by 18% during the first quarter while net losses remained very high at $54.4 million. The company didn’t make any sort of positive progress that would suggest fundamental improvement at all.
However, the stock benefited from the recent surge in meme stocks. It looked like the company might skyrocket higher on short squeeze hopes. Unfortunately, it is almost impossible to predict whether or not a short squeeze will manifest itself. While investors can chase metrics like high percentages of float sold short, those same investors will readily admit such metrics can remain exceedingly high for long periods of time with no ensuing short squeeze.
That’s exactly how investors lose money time and time again. I can’t predict whether that will happen for Beyond Meat but I can say investors should simply avoid it for its weak fundamentals and declining business.
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.