Figuring out the best stocks to buy for your retirement account is not an easy task. But figuring out the ones to avoid at all costs is equally difficult — and arguably more important.
After all, preservation of capital is essential to both retirement planning and stock market success in general. Remember Warren Buffett’s famous two rules of investing: “Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.”
That’s why the Oracle of Omaha prefers predictable, blue-chip dividend stocks above highflying growth stocks that could be here today and gone tomorrow.
While not all of these stocks are doomed to an unceremonious death spiral, I’m confident that at least a few of them won’t be around 10 years from now. And none of them deserve to be a part of your retirement planning.
Here are seven losers I’d avoid at all costs:
7 Toxic Stocks to Avoid in Retirement: Groupon Inc (GRPN)
YTD Return: -67%
Granted, if you have Groupon (GRPN) in your retirement account, it’s already been wreaking havoc on your portfolio.
The online local deals site has been nothing but trouble for investors since its IPO in 2011. What began as the fastest-growing company of all time has quickly morphed into a business that is actually experiencing slumping revenues.
As a result, GRPN stock — which traded around $25 per share after going public — now fetches a paltry $3 per share. And on Tuesday, it announced the sudden resignation of its CEO, who left the company after horrific guidance and a flurry of downgrades sent the stock tumbling more than 25%.
7 Toxic Stocks to Avoid in Retirement: Zynga (ZNGA)
YTD Return: -4%
Zynga (ZNGA), another 2011 IPO that has ultimately been a massive failure, is also a stock you should keep away from any account associated with your retirement.
As a matter of fact, just keep ZNGA away from all your accounts. Shares of the mobile gaming company are down more than 70% since its opening-day close in 2011, as the company’s signature game FarmVille failed to maintain its original popularity.
Co-founder Mark Pincus, who took the company public as its CEO, stepped down in 2013 after investors threw a fit with the stock’s terrible performance. Wall Street thought it was done with Pincus, but he decided to come back in April, a move which triggered an instant 13% decline in Zynga’s stock price.
7 Toxic Stocks to Avoid in Retirement: Etsy (ETSY)
YTD Return: -70% (from Day One closing price)
Handmade goods are cute, OK? I’ll concede that. And I think there’s something to be said for supporting small, local businesses and impassioned hobbyists. But handmade goods are proving to be an awful business from a Wall Street perspective.
I consider Etsy (ETSY) to be another ZNGA and GRPN in the making. While shares have been decimated since Etsy’s April IPO, there’s still plenty of room to go.
It’s a long, long way to zero.
Gross merchandise sales growth, the total dollar value of all transactions on its platform, is decelerating rapidly — despite a manic acceleration of its marketing spend, which was up 88% year-over-year in Q3.
And with the king of online retail, Amazon.com (AMZN) entering the market earlier this year with its Amazon Handmade service, things will only get tougher from here on out. If you’re in ETSY, consider cutting your losses and saving yourself further pain.
7 Toxic Stocks to Avoid in Retirement: Pandora (P)
YTD Return: -29%
Streaming music company Pandora (P) has a litany of problems on its hands. First, there’s the very real specter of competition, from the likes of Spotify, Apple (AAPL) Music, Alphabet’s (GOOG, GOOGL) Google Play Music, and Amazon Prime Music, to name a few.
And while it often pays to be a first mover, Pandora has definitively lost the listener momentum it once had. Pandora’s stock price fell a whopping 35% in a single day in late October, as total listener hours advanced just 3% year-over-year.
But that’s not all: Pandora guided for $325 million to $330 million in fourth-quarter revenue, miles away from the $351 million Wall Street forecast. It’s also paying $90 million to artists and labels for the rights to play oldies (pre-1972 recordings), and paid $450 million to acquire Ticketfly, an online ticketing business. Wedbush, a prominent Wall Street research firm, thinks the acquisition will turn out to be “a disaster.”
Perhaps most importantly, Pandora dropped its efforts to lobby for lower music royalty rates from the Radio Music License Committee, signaling content costs could rise in the coming years.
7 Toxic Stocks to Avoid in Retirement: FireEye (FEYE)
YTD Return: -26%
Cybersecurity was one of the hottest industries in the stock market earlier this year, as a slew of corporate hack-attacks and a budding cyberwar with China sent investors rushing into companies that safeguard against that sort of thing.
FireEye (FEYE) stock was a definite beneficiary of that trend, and at its peak in June, FEYE was up 75% on the year.
But these quick-to-rise, quick-to-fall stocks are no place to stash your retirement savings, as FEYE’s subsequent selloff would come to illustrate. Investors awoke to the fact that they were paying more than 10 times sales for a risky business that is still years away from turning a profit.
Shares tumbled more than 20% on Thursday after the release of third-quarter earnings, when FireEye revealed a troubling deceleration in billings growth as it slashed full-year revenue guidance to $620 million to $628 million, down substantially from the $630 million to $645 million range.
7 Toxic Stocks to Avoid in Retirement: Shake Shack (SHAK)
YTD Return: +9% (from Day One closing price)
Shake Shack (SHAK) is one of the few stocks on on this list that hasn’t been an abject failure year-to-date.
Arguably, that makes it all the more dangerous.
There’s no denying that sales are exploding. Through the first three quarters of 2015, SHAK is expected to haul in nearly $130 million in revenue, up 65% from the $79 million in sales it did in the first nine months of 2014.
On top of that, “Same-Shack sales” jumped 12.9% in Q2, up from 11.7% seen in Q1. There’s no doubt about it, those are awesome numbers … but that type of sales growth doesn’t last long in the restaurant industry.
Ask Chipotle (CMG), which posted same-store sales growth of just 2.6% last quarter, down emphatically from the torrid 19.8% comps growth rate it saw in Q3 2014.
With SHAK stock currently going for 150 times forward earnings, investors need to bring their expectations for Shake Shack back down to earth. After all, it’s a burger chain with 71 locations … not a software firm with unlimited scalability.
7 Toxic Stocks to Avoid in Retirement: Twitter Inc (TWTR)
YTD Return: -21%
Last but not least, you don’t want Twitter (TWTR) infesting your retirement account. While co-founder, dual CEO and all-around golden boy Jack Dorsey is back calling the shots, even he may not be able to stem Twitter’s systemic issues.
Namely, TWTR doesn’t make money. Its user growth is horrendous, and getting worse. And its revenue guidance for the fourth quarter was so bad that shares plunged more than 12% in a matter of minutes after the projections were announced in late October.
Monthly active users, a key metric for the company, barely advanced in Q3 from Q2, increasing from 316 million to 320 million.
What’s arguably more pitiful is that Twitter believes several recent, trivial changes could ignite user growth. Twitter “Moments” debuted shortly after Dorsey was crowned permanent CEO, and seeing as the company is taking out convoluted TV spots to advertise the service, it’s betting pretty heavily that will change things.
It’s also changing star-shaped favorites to heart-shaped likes, and allowing users to create polls.
Wow. How very revolutionary.
I’m kidding. It’s desperate. Twitter stock is still a dog with fleas, and until it starts turning a regular profit and attracting a lot more users, it should remain in the doghouse.
As of this writing, John Divine was long AMZN stock and AAPL stock. You can follow him on Twitter at @divinebizkid or email him at email@example.com.
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