They say the odds of contracting Ebola are less than being struck by lightning or dying in a plane crash. But I’m a hypochondriac and any little sneeze is going to freak me out. As for the rest of you, my advice is not to worry.
The fact is, there are stocks out there that can do far worse damage to you than Ebola likely ever would. Consider SodaStream International (SODA), Netflix (NFLX), and Twitter (TWTR).
All of these stocks are dangerous for different reasons — I’ll address that in upcoming pages of this gallery. However, they all share one thing in common: The slightest nick sends their stock price way down.
While it may take Ebola 21 days to incubate, these suckers have been incubating for years and you better not let them infect your portfolio.
SodaStream (SODA)
I told you back in 2012 and I’ll tell you again — SodaStream is a fad. As I wrote then, there is “an infinite selection of soda flavors, offered under dozens of brands, at prices that are ridiculously cheap. Why am I going to buy a product that requires me to exert labor, to achieve a product that isn’t any better?” The answer is, I’m not and turns out there are not enough new SodaStream customers willing to either.
The stock got a temporary lift last month when it said it was testing flavors of Pepsi (PEP) brands that could be made in the machines. When you have to call in Pepsi to boost sales on a product that’s supposed to put Pepsi out of business, you’ve lost the battle.
SODA stock has reported several quarters in a row of softening U.S. sales. I told you in January how to trade SODA stock short-term (buy for a temporary bounce) and long-term (sell short) and you should institute those moves now.
If you’re currently long SODA stock, then follow the famous words of The Amityville Horror demon, “Get out!” SODA stock isn’t going to zero, and you might pick up points on a bounce, but to stay in long-term is foolish.
Netflix (NFLX)
Netflix is a great service. But I confess I have no idea why NFLX stock hit $485 a share in September. It’s now trading at about $386. I’ve given up trying to understand why people are willing still willing to buy NFLX stock trading at 100 times trailing earnings when it never generates any free cash flow. They just do.
Shareholders also sell the heck out of NFLX stock if anything unexpected happens. NFLX missed a subscriber number last quarter and the stock fell by $80. It has since recouped some of that loss, but if you were long, you were in pain. You probably still are in pain.
That’s the danger of NFLX stock — complete lack of rational behavior by its investor base. Don’t tell me it’s a bargain now. All I can tell you is the risk of another hundred point drop exceeds the likelihood of capturing back the hundred points it has lost.
NFLX stock is for nimble and crazy traders. I recommending selling out now. But if you want to play around, then either hold or short 25 shares and hedge all positions with options.
Twitter (TWTR)
Twitter fails my simple test: I don’t get the business model. Is there a business model? I’m not alone. Jim Cramer said on his TV show that he “listened to the conference call and … honestly doesn’t know what the CEO is saying.” If the business model is advertising, that means having a massive and fast-growing user base.
TWTR stock sold off 10% last Tuesday because, despite its attempts to generate new users, it didn’t sign up as many as expected. TWTR added 5% new users over the quarter, down from the 6.3% increase in the previous quarter, which was boosted by World Cup fever.
Why the sluggish growth? Because, as Mark Cuban says, it doesn’t solve a problem. You don’t need Twitter. I contrast this with Facebook (FB), which many people feel they need, at least from a social perspective.
The market is losing confidence in TWTR, which despite some wild swings, is nearly flat with its stock price of a year ago. It may be acquired some day. But, again, the downside risk outweighs upside potential — even if some idiot buys the company.
Lawrence Meyers has no positions in any security mentioned.
