Retirement planning ain’t easy. Life has a tendency to throw curveballs, and those curveballs can set you back quite a bit.
Just saving for your golden years is hard enough, but once you’ve done that you’re still faced with the always-difficult question of where to invest your hard-earned cash. With market uncertainty reigning supreme in the last few months and the stock market entering correction territory for the fist time since 2011, re-examining your retirement portfolio for overly risky holdings isn’t a bad idea.
As a matter of fact, the potential for a “catastrophic” market event in the next 30 days recently rose to all-time highs by one popular measure.
I’m still pretty sanguine about the state of the U.S. stock market today, but that doesn’t mean there aren’t pitfalls.
In fact, if you’re invested in any of the following seven stocks, I fear that years of strong retirement planning could be swiftly negated, and I’d encourage you to reconsider holding them in your portfolio:
Retirement Planning? 7 Stocks to Avoid: Etsy (ETSY)
YTD Return: -64%
The go-to online marketplace for handmade goods Etsy (ETSY) is a neat company in theory.
The problem — a recurring one with theories, it seems — is that the business faces serious problems in practice.
The fact that notorious competition-killer Amazon.com (AMZN) decided to enter Etsy’s area is bad enough. Perhaps even more jarring to the company’s long-term prospects is the recent rise in non-handmade articles on the website — a scandal that has given some buyers pause — not exactly what a newly public company wants to see.
Since going public in April, ETSY stock is down about 60%, as its shares were clearly overpriced. There’s a strong chance that they still are, too, and a recent “sell” rating from research firm Monness Crespi sent shares plunging more than 11% on Monday.
Retirement Planning? 7 Stocks to Avoid: Twitter (TWTR)
YTD Return: -18%
Twitter (TWTR) stock is extremely hot and cold … in other words, it’s the sort of wildly volatile investment you probably shouldn’t be thinking about if you’re planning for retirement.
Since co-founder and Square CEO Jack Dorsey was named the full-time CEO of Twitter, shares are sharply higher. As you might imagine, it has been mostly sentiment and not long-term changes in the social network that have been driving gains.
At the end of the day, user growth just isn’t where it needs to be; it was up 0.7% quarter-over-quarter in the most recent period.
Twitter certainly is not a stock you’ll want to buy in the retirement planning process.
If you must own a social media stock, Facebook (FB) is the way to go. Despite having about five times the users that TWTR does, it grew its user base at a 3.4% quarter-over-quarter rate in Q2.
Retirement Planning? 7 Stocks to Avoid: Vale (VALE)
YTD Return: -41%
Metals and mining giant Vale (VALE) hasn’t exactly had the best 2015. Or 2014. Or 2013.
As a matter of fact, the stock has lost more than 80% of its value in just the past five years.
A major reason for the precipitous fall in share prices in recent history is simply the exchange rate: Since VALE is based in Brazil but the stock must report its financial figures in U.S. dollars, serious currency headwinds have arisen as the greenback has strengthened against most major world currencies, the Brazilian real included.
In fact, the U.S.-dollar-to-Brazilian-real ratio has more than doubled since 2011, meaning that just to stay even with 2011 financials, VALE would have to generate two times the revenue it did just four years ago. Considering revenues were $100 billion in 2011 and $88 billion in 2014, that’ll be tough to do in 2015.
Factor in plunging commodity prices and decreasing demand for iron ore from China, and you’ve got no real reason to believe this stock will do anything for you in retirement.
Retirement Planning? 7 Stocks to Avoid: Petroleo Brasileiro (PBR)
YTD Return: -32%
Petroleo Brasileiro (PBR, PBR.A) is another Brazilian company plagued by the struggles of the Brazilian real and plunging commodity prices. But that’s not all that’s wrong with this oil and natural gas company; it’s also struggling with a massive bribery scandal involving high-ranking Brazilian politicians … including Brazil’s sitting president, Dilma Rousseff.
Beginning to see how this stock might be toxic to your retirement planning process?
PBR is a state-run energy company, and it’s feeling the hurt from a recent downgrade in Brazil’s sovereign debt to “junk” status for the first time in seven years.
The CEO of Petrobras Distribuidora suddenly resigned recently, and PBR’s Chairman, Murilo Ferreira, is also taking a leave of absence. Hard to find another company as fraught with risks as this one.
Retirement Planning? 7 Stocks to Avoid: Shutterfly (SFLY)
YTD Return: -6%
Like ETSY and TWTR, the photo solutions service Shutterfly (SFLY) is unprofitable, trading on the tenuous potential for future earnings instead of a proven track record of cranking out profits.
Shutterfly — which lets users store their digital pictures online, then order prints, photo books, calendars, wedding cards and other products with their likenesses — lost $8 million in 2014.
Considering the company hauled in $921 million in revenue last year, relatively slim losses like that won’t ruin your plans for retirement in and of themselves. But your retirement planning could be thrown for a loop if Hewlett-Packard (HPQ) or Rite Aid (RAD) or even Alphabet (GOOG, GOOGL) decided to enter the market with tenacity and crush Shutterfly.
With a current valuation near 85 times projected 2016 earnings, SFLY is a hard stock to justify for your retirement portfolio.
Retirement Planning? 7 Stocks to Avoid: Yelp (YELP)
YTD Return: -59%
While online consumer review site Yelp (YELP) may seem like one of the more stable companies on this list due to its familiarity, please do not be fooled.
It assuredly is one of the riskier plays in the stock market today, and could single-handedly implode your retirement portfolio if held in large enough quantities. Consider its year-to-date performance in 2015: with two-and-a-half months left, YELP stock has already lost roughly 60% of its value.
Analysts expected YELP to come out in the black in both the first and second quarters. Instead, Yelp reported losses, and the secular trend away from PCs in the direction of mobile presents more problems for the company due to the lower price of mobile ads.
If you’re in the midst of retirement planning, you probably don’t want to be investing in a stock that analysts are consistently downgrading.
Retirement Planning? 7 Stocks to Avoid: Pandora (P)
YTD Return: +13%
Last but (maybe) not least, we come to Pandora (P), once the darling of the streaming music industry. Unfortunately for shareholders, the streaming music space has gotten awfully competitive recently.
Spotify is perhaps the company’s most potent direct competitor, but Apple (AAPL) and Google. as well as smaller direct competitors like iHeartRadio, also pose distinct threats.
Still, that’s not the main reason I’d recommend those planning for retirement stay far away from Pandora stock. The main reason I’d avoid this stock is that its future lies largely outside of its own locus of control. The Copyright Royalty Board meets in December to determine the rates Pandora will have to pay to artists and labels for the next five years.
Even if those rates are just a little on the high side, the stock could be destroyed.
With no trailing earnings to speak of, and trading at roughly 45 times forward earnings, Pandora is, at its core, a highly speculative stock that even risk-tolerant investors should view skeptically.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.