Just when you think it is safe to go back in the water, the sharks return. The trigger for the current chaos was the Federal Reserve policy statement and freshman chairperson, Janet Yellen spooking investors with her 6 months later statement about when interest rates would go up.
Since then it has been a risk off moment to say the least. While the overall market is only down slightly there are entire swaths of the market that have not fared so well.
Take biotechnology. The former darling of the momentum crowd has been absolutely crushed in the last half of March. Call it profit taking or portfolio window dressing or tax related selling. Whatever the reason, the selling has been absolutely brutal.
Will it continue in April?
Anything is possible that’s for sure, but honestly I think the market is rather oversold, especially in some of these momentum categories that have been hit extraordinarily hard.
Ultimately it comes down to valuation and there things look much better than the fearful state we currently reside. The end of the quarter brings us to earnings season and the numbers should be supportive of a quick reversal. That said as the numbers roll in there are certain stocks that simply should not be owned no matter what direction the market is moving in.
If not already sold, here are 3 toxic stocks to dump now in the risk off world we now live in.
Toxic Stocks to Dump Now: Twitter (TWTR)
It’s spring-time and the birds are chirping but that doesn’t mean you should go nuts with the latest craze in tweeting. The social networking company, Twitter (TWTR) is a disaster waiting to happen and an expensive one at that. Even though the stock has cratered since peaking earlier this year, shares are still well above their initial offering price.
As for profits you get to buy 4-digit growth by paying 4600 times current year estimated earnings. Those numbers are a bit nonsensical given the penny per share estimate and growth from there, but still expensive it is. Nothing is guaranteed for Twitter thus paying such a premium seems foolhardy no matter risk on or risk off. I would dump this stock post haste.
Toxic Stocks to Dump Now: Zynga (ZNGA)
Perhaps the biggest indication of the risk off trade being in play is the market reaction to the initial public offering of Candy Crush game maker, King (KING). The one-trick pony lost value after coming to market. In a risk on mode, this one could have popped by 100% or more. Not in this environment and the reaction to King Media should have Zynga (ZNGA) shareholders quite nervous. Running up to the King IPO stories abound about how Zynga was a failed IPO.
Like King Zynga was a one product company heavily reliant on Facebook (FB). Its demise is well documented. Now some vultures like Steven Cohen of SAC Capital are swooping in. I wouldn’t be one of them. This company lost money last year and according to analyst estimates will barely make a profit this year. It doesn’t get much better in 2015. What’s the motivation for owning this dog? I have no idea and with a risk off environment Zynga is one of the first stocks I would look to dump.
Toxic Stocks to Dump Now: Sodastream (SODA)
The home soda dispenser, Sodastream (SODA) might just be the short of the century. This company might not be dead yet, but it soon will be. They don’t stand a chance.
With Coca-Cola (KO) aligned with Green Mountain Coffee (GMCR), Sodastream is absolutely finished. They ought to fold up shop now and assume the fetal position. Once Green Mountain and Coke are up and running, there’s no reason for consumers to use Sodastream’s products. PepsiCo (PEP) might come calling, but that would be a miracle that might never come. Nope, with Sodastream still holding much value in the market this one is an easy stock to dump in a risk off environment. Valuation today doesn’t really matter. It’s all about the future here and given the new competitive landscape a 50% haircut or more is not out of the question.
Written by Jamie Dlugosch