Are you accumulating enough of an nest egg to maintain a lifestyle comparable to the one you enjoyed while still working?
It’s a question you’ll have to frequently ask yourself as you navigate a path toward retirement. And typically, when you do that, you’ll think about the world in terms of stocks vs. bonds.
And that’s fair. After all, too much in bonds, and we might not have enough to do so over the life of our retirement; too much in stocks, and a recurrence of what happened in 2008 could permanently alter our spending habits. Experts agree that asset allocation has a major impact on whether we will successfully reach our retirement goals.
Every person’s decision-making is slightly different, but we all arrive at the same conclusion: We want to have enough in retirement.
But whether you’re 100% in stocks or 40% in stocks, picking the wrong stocks could also be detrimental to your health.
Many experts recommend passive indexing, which protects you from specific company risk. But plenty of people hold stocks, and that’s not going to change anytime soon. So if you are going to hold individual assets, avoid these 10 stocks, because they could seriously derail your retirement.
Stocks That Could Derail Your Retirement: American Airlines Group Inc (AAL)
Airline stocks have been on a tear for several years now. Ironically, only in 2015 did they hit the skids — just as oil prices were spiraling downward.
And whether we’re talking five years or 10, airline stocks have outperformed the S&P 500 — handily.
American Airlines Group Inc (AAL), which began trading in late December 2013 after merging with US Airways, had a strong showing in 2014, more than doubling its stock price before it gave back some of those gains in 2015. Year-to-date, it’s up almost 3%.
However, AAL is at a crossroad, and I don’t think it’s going to end well.
That’s because its pilots — some of the strongest supporters of the merger — are griping in the press about management returning to its old practices of mistreating employees while providing customers with substandard product.
It’s a recipe for disaster in any business, but a telltale sign in the airline industry that the good times are about to come to a crashing halt.
As Richard Branson once said, “If you want to be a millionaire, start with a billion dollars and launch a new airline.” American Airlines might not be a startup, but the same rule applies. When airlines hit the skids, it gets ugly fast.
Stocks That Could Derail Your Retirement: Aeropostale Inc (ARO)
Teen retailer Aeropostale Inc (ARO) currently sits on death’s doorstep, having delivered another losing quarter March 17 with no end to the misery in sight. Three years of straight losses will test any business but especially one in a segment that’s expected to face more pain than gain in the coming months.
Bankruptcy for Aeropostale is a real possibility.
ARO did announce that it’s exploring strategic alternatives such as selling itself to the highest bidder, although even that seems farfetched given how much money it owes Sycamore Partners, the private equity firm that lent it $150 million in 2014 so that it could stay afloat.
If you’re tempted by the 20-cent stock price, don’t be. There is no silver lining on this one. Buy a lottery ticket instead.
Stocks That Could Derail Your Retirement: BlackBerry Ltd (BBRY)
BlackBerry Ltd (BBRY) is another cheap stock to tempt the gamblers among us.
This one’s not quite as easy to scare people away from, because BlackBerry does have some redeeming qualities. But I wouldn’t say there are enough of them for you to start planning an around the world retirement cruise using profits from BBRY stock.
Blessed with a ton of cash and transitioning to a software-based business from that of a handset maker, many investors are betting that CEO John Chen will make the turnaround work either by delivering increased free cash flow through higher-margin software products, better traction with Android-powered phones such as the Priv, or selling itself to a bigger, more stable competitor.
Hey, all of those could happen … but that isn’t the same as they will happen, and those closest to retirement should be especially mindful of the most important rule of investing: preservation of capital.
If BBRY doesn’t do any of the things I mentioned, you can bet it will remain a sub-$10 stock.
Stocks That Could Derail Your Retirement: Blue Buffalo Pet Products Inc (BUFF)
It’s hard to balance the fact Blue Buffalo Pet Products Inc (BUFF) is one of the fastest growing pet food companies in the U.S. whose adjusted EBITDA has grown by 400% in the past four years with the reality that the maker of “healthy” pet food recently made a $32 million settlement of a class action lawsuit that claimed it used byproducts in its food despite advertising to the contrary.
Which of the two statements is the true Blue Buffalo?
BUFF claims a former ingredient supplier and a food broker are to blame for the entire problem and that customers can count on them for only “the finest natural ingredients.” However, despite its adamant denials of any wrongdoing, Purina is continuing its false advertising lawsuit against Blue Buffalo. Clearly, Purina’s not convinced this was an isolated incident.
Since the announcement on Dec. 14, 2015, BUFF stock is up almost 40%, most of it on the back of its March 8 earnings report. It went public last July at $20 and since then is up about 20% with momentum on its side.
While tempting, remember the phrase “once bitten, twice shy.” This isn’t a stock you should use to fund your retirement, because where there’s smoke there’s often fire.
Stocks That Could Derail Your Retirement: Kate Spade & Co (KATE)
Retailer Kate Spade & Co (KATE) announced Q4 earnings in early March that missed the mark on several fronts. Analysts expected adjusted earnings per share of 33 cents; it delivered 32 cents. Analysts expected $444 million in revenue in Q4; Kate delivered $429 million.
Neither, however, should be considered a big deal.
What is a big deal is that the company can’t seem to generate enough profits on an annual basis — net income of $17.1 million in 2015 on $1.24 billion in revenue — and if you’re going to put your retirement nest egg in the hands of this very popular brand, you need to have some certainty long-term that it can deliver the goods when it comes to profits.
Over the past five years, Kate Spade has generated $4.3 billion in revenue. Disappointingly, it has generated $56 million in operating losses over the same period. Its operating margin in 2015 at 5.4% was its most profitable year yet. That has to count for something.
Well, it might if you’re a speculator … but if you’re investing for your retirement there just isn’t enough good news to warrant owning this stock.
Especially when you can own Coach Inc (COH), a competitor with an operating margin almost three times higher.
Stocks That Could Derail Your Retirement: Sears Holdings Corp (SHLD)
While billionaire investors such as Bruce Fairholme, the second-largest shareholder in the troubled department store, can afford to wait for the eventual winding down of the company and the sale its real estate assets, you can’t.
Year-to-date, Sears Holdings Corp (SHLD) stock is off 26%. Since 2006, it has seen its market cap shrink from $18.8 billion to less than $2 billion.
This isn’t a falling knife you want to get behind, either, because everyone but Eddie Lampert — and heck, maybe including Eddie — knows that its days as a retailer are seriously limited.
In Q4, Sears lost $580 million — $421 million more than in Q4 2014. Lampert’s words on the loss:
“But it is unfair to evaluate our approach through the rearview mirror without acknowledging the changing circumstances in our industry as well as our bold attempts to change the way we do business to meet this changing reality.”
These words could just have easily been from Q4 2014, 2013 and the many losing years before that.
It’s a broken record that investors interested in funding retirement should want nothing to do with.
Stocks That Could Derail Your Retirement: Companhia Siderurgica Nacional (SID)
One word. (Well, actually two.) Brazil and steel.
The country itself faces a political mess at the moment that likely will get sorted out at some point but investors, especially those looking for safe, low-volatility type investments, don’t need the headaches that a country in turmoil presents.
Nor do you need to be investing in the stocks of businesses on the precipice of bankruptcy. In early February, Forbes discussed the hopeless situation that Companhia Siderurgica Nacional (SID) faces in the global steel markets. It’s going to have to dump a bunch of its product at a loss, and that has Fitch Ratings suggesting that the steelmaker won’t return to its historical EBITDA of $1.2 billion anytime in the near future.
For those building a retirement nest egg, time is money. SID should get none.
Stocks That Could Derail Your Retirement: Twitter Inc (TWTR)
The social media network celebrated its 10th birthday this week, and while Twitter Inc (TWTR) has certainly changed the way we receive news, the more pressing question has to be whether it will ever make money.
Tweeting can become addictive and while it might even have been a contributing factor in growing your business or getting promoted at your job, don’t think for a second that your insatiable use of this social medium means in any fashion an endorsement of its stock.
This is not “I drink Starbucks, thus I should own its stock”. Far from it. Starbucks Corporation (SBUX) makes money. Twitter loses money — and lots of it. Since 2010, its operating losses have totaled almost $2 billion.
TWTR stock is not for the faint of heart. In fact, it hasn’t come away with a winner in either of its two full years of being public.
If you want to build a retirement nest egg, this is the last place you should start.
Stocks That Could Derail Your Retirement: Swift Transportation Co (SWFT)
Swift Transportation Co (SWFT), one of the country’s biggest trucking companies, went public in December 2010 at $11 per share. Its stock is up 67% since the IPO.
That’s not bad … until you consider that the S&P 500 is up 84% over the same five-year period.
The company’s biggest shareholder is Jerry Moyes, who founded the trucking firm in 1966. Pushed out of the CEO job in October 2005, Moyes took back control of the firm he founded in 2007, then three years later took it public to repay some of Swift’s debt. Today, SWFT’s long-term debt is about half what it was at the time of the IPO.
Moyes’ operation of the business is not where I take issue. For me, it’s about his handling of the Phoenix Coyotes NHL hockey team. He put them into bankruptcy in May 2009 and tried to sell them to BlackBerry co-founder Jim Balsillie, and eventually the club was bought out of bankruptcy for $140 million. Financially, the team has never been the same.
Moyes bailed after less than three years involvement with the team and its arena. He has no staying power. The next time Swift gets into trouble, you can bet he’s going to cut and run.
Stocks That Could Derail Your Retirement: Staples, Inc. (SPLS)
Have you been to Staples, Inc. (SPLS) lately? If it wasn’t for the photocopying machines, I don’t think there would be any people left in the stores.
On Monday, Staples and Office Depot made the case to the Federal Trade Commission that they should be allowed to merge because otherwise Amazon.com, Inc. (AMZN) would put them through the meat grinder with nothing coming out the end but two dead carcasses.
However, it’s not the retail stores that have the FTC opposing this merger, but rather the implications for Fortune 100 companies that buy products through either of the companies. The FTC lawyers argue that a merged business would control 79% of the Fortune 100 business, prices would be higher for those companies, and more importantly, Amazon is no threat to Staples or Office Depot.
The bottom line: There are thousands of stocks you can invest in to fund your retirement. Do you really want one of them to be Staples, a company that feels its best way to survive is to bully its way into a merger?
Successful or not, I sure don’t.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.