As investors, we tend to be optimistic. We’re always looking for the next opportunity, the next diamond in the rough, the silver lining in the disappointing economic data.
But as investors, we’re also realistic. We know when to say “no”, when to cut our losses, and when to change our strategies.
Here at Potus Trader, we usually cover growth stocks. But we know that avoiding a bad investment can be just as a beneficial as finding a good one. In this post, we take a look at some stocks to avoid in 2018.
Chipotle Mexican Grill (CMG)
Chipotle’s stock is trading at $281.27, down 25% since the year began. Despite its best efforts, this once-popular restaurant chain never recovered from a 2015 E. coli scandal.
The stock price has fallen by more than 60% since August 2015. It’s not for lack of trying, but Cowen & Co analyst Andrew Charles doesn’t see things getting much better:
“Despite new food safety protocols, enhanced marketing efforts, and new menu additions, no tangible initiative over the past 18 months has managed to reverse, let alone marginally improve, overall respondents’ perceptions.”
Investors should also remember how competitive the restaurant industry can be. Consumers are always looking for new tastes—literally. Chipotle was so successful before the scandal because it was relatively new and popular with younger consumers. Over the past two years, fresher competitors have come to the fore. Chipotle is no longer a brand that sells.
Bed Bath & Beyond (BBBY)
We’ve written extensively about the “Amazon effect”, the process by which traditional retailers are getting mowed down by online competition. Some companies, such as Walmart, have adapted relatively well to the rise of online shopping. Others haven’t done so well.
BBBY is in the latter group. Currently trading at $21.06, its stock price has fallen by 48% since the year began. The two-year trend line looks even worse.
Net income has fallen from $1.04 billion in fiscal 2013 to $685.11 in fiscal 2017. Growth in expenses has outpaced growth in revenue, which has been sluggish. Unless BBBY can dramatically cut costs while keeping sales stable, it will be one of the stocks to avoid in 2018.
Campbell Soup Company (CPB)
Like the other stocks on this list, Campbell is a brand that has struggled to keep up with the changing times. Eating habits are shifting. More consumers are choosing fresh foods over canned goods. For those too busy to cook their own meals, there are endless takeout, delivery, and frozen food options.
Campbell’s stock is now trading at $46.77. It has fallen by 23% since the year began. The proof is in the pudding. Investors are avoiding Campbell because of disappointing sales. Fiscal 2017 net sales decreased by 1% as consumer spending expanded overall.
There is a silver lining, and it’s the reason some analysts suggest buying Campbell once it falls below $40: The stock has an investor-friendly P/E Ratio of 16.05. Still, sales are unlikely to recover much. Of the 17 analysts surveyed by Market Realist, only 12% recommended buying this stock.
Electronic Arts Inc. (EA)
Electronic Arts is royalty in the video game industry, producing such popular games as The Sims, Madden NFL, and Star Wars Battlefront. It’s currently trading at $108.43, up 37% since the year began.
So why is Electronic Arts one of our stocks to avoid in 2018? It’s overpriced. The P/E Ratio is 29.04, above the average range of 20-25.
Plus, revenue hasn’t been as robust as most analysts expected. Second-quarter net revenue for fiscal 2018 was up 6.7% year-on-year—not bad, but lower than most expected.
The company is also being hit by criticisms over its new Stars Wars Battlefront 2 game. Customers hate it, and according to Eurogamer.net, physical sales are down 60% from the game’s predecessor, Battlefront 1.
Electronic Arts has gotten cocky. It needs to produce a better product if it wants to trade over $100. For now, it’s not worth the investment.