The die is cast for the Fed to raise interest rates as early as its next meeting.
Minutes from the Fed’s October confab show the members in agreement that conditions for a rate hike could “well be met” to raise rates for the first time since 2006.
What does it all mean? As soon as someone figures that one out with certainty, be sure to let others know.
In the meantime, what we can view with some certainty is the long-term future for these seven stocks that investors should avoid during 2016.
The reasons are as varied as the players, but they all share one common trait: dead money for investors.
Let’s take a look at five names for your 2016 blacklist…
Chevron (CVX)
Oil prices continue to show no sign of recovery, or at least not enough to suggest Chevron (CVX), which tanked just over 20% year-to-date, even after a very recent, yet short-lived rally.
After three years of spending over $100 billion in capital expenditures, Chevron recently announced (see CVX report here) it will cut back, and look to asset sales and debt to help cover any cash flow issues.
Now, CVX isn’t going to run out of money any time soon, but with four consecutive years of lower earnings, the starting line is under pressure. In three of those years, balance sheet cash has deteriorated.
It’s no wonder both BIDNESS ETC and Motley Fool wondered if CVX’s “Dividend Aristocrat” tag is in under pressure, if not in jeopardy.
Somehow, CVX stock is trading at just under 20x trailing earnings. That’s absurd.
With its annual dividend hike being questioned, its cash flow leaning on debt, and oil prices still stuck, CVX is nowhere to put your money in 2016.
Cummins (CMI)
This one is a bit of a shame, because Cummins (CMI) is truly a pioneer in its field of diesel engine technology and innovation—but its business is cyclical, and right now that cycle is down.
Indeed, CMI stock has dropped over 35% year-to-date despite increasing its dividend, which now sports a very attractive 4% yield.
A recent downgrade from Bank of America/Merrill Lynch (BAC) initially reported by Benzinga won’t help, either.
Revenues are expected to continue falling, with margins following the same downward path. In addition to BAC, Morgan Stanley (MS) also weighed in with a downgrade, pushing CMI from “equal-weight” to “underweight.”
While CMI sits at around $92 per share today, a low-end price of $80 per share, last reached in 2011-2012, isn’t out of reach—particularly if foreign markets like Brazil and China, where CMI is looking for growth, don’t pan out.
If the economy slows down even a tick due to the rate increase, CMI will struggle even more.
It’s best to avoid CMI in 2016.
GoPro (GPRO)
C’mon, people!
It’s a camera mounted on a bike helmet/ski helmet/skateboard/surfboard or whatever nuance people can figure out to get noticed. A camera!
GoPro (GPRO) is simply another fad stock with a faddish product that virtually any technology company out there can make it if so chooses.
Indeed, Google (GOOG) and Apple (AAPL) already have plenty of camera technology at their disposal.
For those who were fortunate enough to get in on the $24 per share IPO price in July 2014, congratulations.
For those who managed to hold on to those shares while they doubled in five days to $48 per share, here’s hoping you sold the very next day.
For the rest of those who held on through the latest close of $18 per share, well, that’s the way it goes.
It won’t get much better, either.
Analyst William Power at Robert W. Baird cut his target price in half, from $36 (now that’s a bit bullish) to $18, which one suspects makes GPRO a steal at $17 per share.
Even worse, one if its major suppliers, Ambarella (AMBA), provided weak guidance for its fourth quarter.
The bottom line on Go-Pro is aptly summed up by InvestorPlace’s Dan Burrows, who knows what everyone who sold the stock at $48 per share knows: GPRO has no real advantages on any competitors, no moat to speak of, and no real future.
Buy another camera, put it on your bicycle, and pedal away from GoPro in 2016.
Pandora (P)
Speaking of no real competitive advantages, what is Pandora (P) supposed to do?
P stock is down over 36% year-to-date, and while it’s a nice way to gather and listen to music, the competition is a bit daunting in the space, no?
As a nearly first in its class streaming service back in 2011 when it debuted on the scene through its IPO, Pandora had that world mostly to itself.
Naturally, the stock hit nearly $40, a nice run of 150% over its $16 share IPO price.
But that was then, or in other words, before Apple’s iTunes Radio (not to mention its purchase of Beats), and Google’s Google Music, and Spotify to name just a few.
It’s a dark and dangerous world out there for Pandora, and the going just got tougher still: Motley Fool’s Steve Symington reported that P will offer a $300 million convertible note that could be dilutive to existing shareholder interests.
Here’s the rub: Pandora needs to sink money into finding ways to build a better (streaming) boat, all the while losing money basically hand over fist.
In case investors have not noticed, P hasn’t made a dime in net income in any fiscal (December 31) year.
Forget about Pandora. Like the company, investors will be throwing good money after bad.
Verizon (VZ)
It’s not so much that Verizon (VZ) has lost money for investors, as its stock is only down marginally (2.3%) year-to-date.
In fact, for the last year, its “only” down just under 6%, while blood-rival AT&T (T) has managed to eke out a marginal gain.
It’s the dividend that’s the killer for investors. Verizon has become a dividend trap, in which investors love the 5.5% dividend yield but never look at the miserly payout raises.
Nor is VZ stock going anywhere soon. The stock peaked in April 2013 at around $53 per share, and has languished around a trading level between $40 per share and $50 per share since May of the same year.
As we’ve said before, VZ doesn’t show much promise or initiative, and that doesn’t appear to be changing in 2016, either.
The long and slow road in Verizon isn’t the way to go in 2016.
This post originally appeared in mainstreetinvestor.com.
