The right stocks can make you rich and change your life.
The wrong stocks, though… They can do a whole lot more than “underperform.” If only! They can eviscerate your wealth, bleeding out your hard-won profits.
They’re pure portfolio poison.
Surprisingly, not many investors want to talk about this. You certainly don’t hear about the danger in the mainstream media – until it’s too late.
That’s not to suggest they’re obscure companies – some of the “toxic stocks” I’m going to name for you are, in fact, regularly in the headlines for other reasons, often in glowing terms.
I’m going to run down the list and give you the chance to learn the names of three companies I think everyone should own instead.
But first, if you own any or all of these “toxic stocks,” sell them today…
Verizon Communications (VZ)
Verizon stands as one of the high-debt stocks to approach cautiously despite experiencing a 21% correction year-to-date (YTD). While the stock presents an appealing forward price-earnings ratio of 6.7, its valuation may continue to lag due to concerns over high credit stress, particularly if economic conditions remain lackluster.
As of Q2 2023, Verizon reported a total debt load of $152.6 billion. Although the company boasts a robust EBITDA that should support debt servicing, investors should be cautious. In the first half of 2023, Verizon’s revenue declined by 2.7%, and its total interest expense for the same period amounted to $2.5 billion. Any further drop in revenue or potential EBITDA margin compression could exert downward pressure on VZ stock.
On a positive note, VZ stock offers an enticing dividend yield of 8.46%. Investors might find an entry point appealing if the stock experiences an additional 10% to 15% correction from its current levels.
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Moderna (MRNA)
Moderna emerged as one of the pandemic’s big winners but has since faced challenges. Currently, MRNA stock is trading around $100 per share, a significant drop from its peak at nearly $500 per share in mid-2021.
It’s important to note that the landscape for COVID-19 vaccine stocks has evolved considerably since mid-2021, and Moderna’s promising pipeline will need time for development. It’s essential to consider these concerns for investors seeking near-term stability in cash flow.
Despite Moderna’s impressive technology, declining revenue forecasts in the near future may not make it a favorable investment choice at this point. As such, it might be prudent to place this stock in the “sell” category, at least for the time being.
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Upstart Holdings (UPST)
Upstart relies heavily on macroeconomic factors, particularly interest rates and overall economic conditions. A significant rise in interest rates or an economic downturn could negatively impact Upstart’s lending operations, potentially leading to more loan defaults and financial losses.
Looking at its financial performance, there are worrisome signs. In Q2 2023, Upstart reported a concerning 40% YoY decline in net revenue, indicating challenges in sustaining its growth.
The Upstart Macro Index and concerns about borrower delinquency trends also raise questions. While the company asserts its underwriting models are well-calibrated, predicting borrower behavior in a dynamic economic environment remains complex.
Moreover, the uncertainty surrounding the U.S. economy, interest rates, and borrower delinquency trends is a specific worry. Economic ambiguity makes it difficult for Upstart to make accurate financial projections and strategic plans, as the timing and strength of an economic recovery remain uncertain, closely impacting Upstart’s performance.
Lastly, Upstart’s reliance on external funding sources is a potential vulnerability. Funding constraints could impede its ability to expand lending operations. In a competitive lending landscape, access to capital is vital for growth. Therefore, if Upstart faces challenges in securing funding or higher borrowing costs, it could affect profitability and growth prospects.
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