In general, tech has been in an uptrend for a couple of years now, but this growth is getting harder to come by. If you look at the exchange-traded funds following the broad tech market players, they’re flat for the past year and year-to-date.
That’s not saying much.
Part of the reason has been the transition in technology on the computer and semiconductor side. The move out of PCs and toward mobile has meant a shift in chip strategies as well as product lines.
Telecom has seen strong growth in LTE, 4G and fiber optics, but its legacy business is dying. That leaves it to compete with a more diverse group of companies from different sectors. And while biotech had a run, some stocks may’ve ran a lap too far.
To sum up: Smartphone sales are off and e-commerce is changing as big multi-nationals have beefed up their games.
The point is, there is a lot risk now in tech. And these eight tech stocks to avoid are shining examples of what not to be involved in right now.
Tech Stocks to Avoid: BitAuto Hldg Ltd (ADR)
BitAuto (BITA) is one of those homegrown Chinese internet service providers that has been on a rocket ship for the past few years. But troubles with the Chinese economy have been weighing on the stock since last year.
BITA creates online platforms for car dealers, from site design to customer service. It’s a great business model when the world’s most populous country is adding massive numbers of its citizenry to the middle class. It’s not a great place to be when that growth stops.
For example, before the official slump in January 2015, BITA was trading at $92 and change. Now, it’s around 19 and change.
The point is, regardless of how good its business model is, there isn’t the growth that everyone expected early on. That can be a difficult place to be until the market reevaluates the company’s prospects. And no place for an investor.
Tech Stocks to Avoid: Cheetah Mobile Inc (ADR) (CMCM)
Cheetah Mobile (CMCM), a Chinese app maker, keeps reporting big numbers but the stock has some serious issues. It’s off 30% in 2016 and 65% in the past year.
Some people say a recent 20% gap down after earnings was about CMCM’s guidance for the second quarter; that the number showed continued strong growth for Q1, but economic headwinds were going to limit Q2. For a growth-based company, this is a stock killer.
What’s worse is a story in BidnessEtc that refers to Alecto Research’s report claiming Cheetah Mobile apps are essentially junk and Apple Inc. (AAPL) has banned at least some CMCM apps from iPhones. It has a price target on the stock at zero.
That is not a vote of confidence.
There are too many other tech stocks, don’t go down with this one.
Tech Stocks to Avoid: Verint Systems Inc. (VRNT)
Verint Systems (VRNT) is essentially a cybersecurity company. The opportunity here is huge, since cyber attacks are growing exponentially on a daily basis and many companies have not had the interest or the bank accounts to spend on putting in robust cybersecurity applications.
There are, however, a number of young, focused cybersecurity firms out there, making it hard to build a name for yourself, or even get noticed. And once you do, it’s about crushing the competition and building out far and wide.
VRNT has its share of opportunities and risks. With over 10,000 enterprise clients in 180 countries, it has been spreading the word. But the growth that has sustained it up to now is slowing. The weak global economy hurts non-U.S. businesses and the strong dollar hurts overseas revenues when converted back to dollars.
That’s why in the last quarter, revenues were off 10% year-over-year and earnings came in significantly lower than expected. The stock is off 47% in the past year, and trending down.
Tech Stocks to Avoid: SunPower Corporation (SPWR)
SunPower (SPWR) is a solar company that works in the commercial, residential and utility markets building custom solar solutions for its clients.
The problem with renewable energy companies is that they’re only hot when the economy is strong enough for people and businesses to have money to invest in the technology. When money is tight, the demand dries up.
We’ve seen this time and again. And this time is no different. SPWR earnings for Q1 came in 80% below expectations. It’s hard to brush that off.
Plus, the stock is off 40% year to date. The trend here is not encouraging. And this is no time to bottom fish.
Tech Stocks to Avoid: FireEye Inc (FEYE)
FireEye (FEYE) was a media darling when data breaches were the hot topic in 2014. It seemed like FEYE was getting contracts and all the buzz in the cybersecurity community. It was trading at $85 back in those days, with no end in sight.
Now, it’s trading mid-15s. Its margins for Q1 were -44%. Obviously sales are down and margins with them. This highflier is experiencing Newton’s Law of Gravity, and the speed of one’s ascent is matched equally by its eventual descent.
Some argue this sector and this stock in particular are now stabilizing and some of the firms are becoming value plays here. I am still in the ‘don’t try to catch a falling knife’ camp.
Just like you can’t tell how high a stock can rise on sentiment, you can’t tell how far it will fall before the negative sentiment releases it.
Tech Stocks to Avoid: AU Optronics Corp (AUO)
AU Optronics (AUO) would seem to be in the perfect niche. It’s a leading global producer of thin film LCD panels for everything from televisions to smartphones, and everything in between.
But the stock is off 50% since June 2015.
AUO is stuck with a global supply chain and a weak global economy. Demand is down for all these new tech devices and that is directly reflected in the price of AUO.
The Taiwan-based firm also has to deal with a new Taiwanese president and her relationship with mainland China. This may be a boon or bust for Taiwan-based firms and there’s no clear direction at this point. It’s best to stay away until global growth is on surer footing.
Tech Stocks to Avoid: Zebra Technologies Corp. (ZBRA)
Zebra Technologies (ZBRA) is like an anaconda that tried to swallow an alligator. If you haven’t seen the pictures of this, it didn’t work out well for either party. It’s the perfect example of the old rule, “never eat anything bigger than your head.”
ZBRA had a nice niches in the bar coding and asset tracking equipment sector, when it decided it was time to become a bigger player in the future of the sector and purchased Motorola Solutions Enterprise unit for $3.45 billion. That doubled the size of the company.
Sure, Wall Street loves a growth story. And it loves a big, bold M&A story, too. And ZBRA was trading at lofty $116 a share last June. It’s now trading around $51. And quarterly numbers are not inspiring.
Given the lackluster economy, it’s not likely many stores will have the money to invest in this next generation technology right now. And ZBRA stock still has an undefined bottom yet to reach.
Tech Stocks to Avoid: Seagate Technology PLC (STX)
Seagate (STX) has been around since the mid-1970s. It’s one of the oldest and most influential hard drive makers over all these years.
It has managed to find a way to succeed in a highly competitive, rapidly changing industry for nearly four decades. That is a successful company.
But the problem is, hard disk drives, STX’s main product, are under pressure from the next wave of memory technologies, like flash memory or NAND. NAND technology makes it much easier to put memory in small devices like smartphones and tablets, even watches.
This newest trend, combined with a slow economy is hurting STX. According to its most recent quarterly numbers, quarterly revenues were off 22% compared to last year. Earnings per share came in at 22 cents, compared to $1.16 in the same quarter last year.
Yes, it’s kicking off a staggering 11% dividend, but if sales continue to swoon, it’s just a matter of time before they cut the dividend and the stock will fall even more. Stay away for now.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool,PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.