We hate stocks. Plain and simple. The downturns of 2000 and 2008 have taken many individuals out of the game never to return. Those that did have generally stuck to domestic equity exchange-traded funds — the lesser of two evils.
Just look at the stats: Households have been net sellers of equities since 2007. In fact, the amount of financial assets represented by stocks has declined by nearly 19% — the biggest selloff in individual stocks since the 10% liquidation that occurred in the decade between 1979 and 1989.
But the problem with sticking your head in the sand is that inflation rears its ugly head making it almost impossible to save enough for retirement. Financial planners will tell you that sure-thing investments such as Treasury bills, government bonds, etc., will not get you where you need to go, especially in these times of low interest rates.
Chances are if you buy a diversified portfolio of stocks in healthy companies, you can expect annual returns of 4% over the long-term, says BlackRock CEO Larry Fink. That’s not great, but it’s better than negative returns. Preservation of capital is the name of the game. Time will take care of the rest.
Stocks are not inherently bad. Rather, it’s the specific companies behind the stocks that are the problem. Think Enron, WorldCom, Lehman Brothers, etc.
Forget about the good companies and focus on avoiding the bad. Specifically, avoid these 10 stocks — because owning them will hold back your retirement.
Stocks That Will Hold Back Your Retirement: First Data (FDC)
When you buy something online, First Data had a hand in processing the transaction. At the store, same thing. They’re everywhere taking a tiny slice of each of those transactions.
Simple business model: Transaction made equals fee paid. Money in the bank.
The only problem is that First Data hasn’t made any money in the past five fiscal years. Cumulatively, it lost $3.6 billion from 2011 through 2015. Yet KKR &Co. L.P. (KKR) was able to take the company public in October 2015, raising $2.6 billion to make it the biggest IPO of the year.
Look, FDC went public at $16. It’s now trading below $11. It might be a good turnaround story for Fortune to write about, but if it’s not making money, it doesn’t belong in your retirement portfolio. End of story. Don’t be a sucker on KKR’s behalf.
Stocks That Will Hold Back Your Retirement: Cornerstone OnDemand (CSOD)
Cloud computing continues to gain momentum, and nowhere is this more evident than in human resources.
That’s where Cornerstone OnDemand, Inc. (NASDAQ:CSOD) Software-as-a-Service (SaaS) is used to improve the employee life cycle from recruitment through training and management of those ultimately hired.
Given some of the garbage HR recruitment programs out there, it’s never a bad thing when an organization like Cornerstone OnDemand steps up to improve how things are done.
Analysts love its stock. For instance, Goldman Sachs analyst Greg Dunham initiated CSOD with a “Buy” rating in late May and a 12-month price target of $43.
While I like what CSOD is doing, the simple fact is it doesn’t make money doing it. Cornerstone took an $18.2 million loss in the first quarter ended March 31. On a non-GAAP basis, it essentially broke even. That’s another no-no for retirement portfolios. If the numbers have to be explained this way, you want to steer clear.
(That said, if you’ve got a “fun money” account where you can afford to lose it all, CSOD isn’t a bad play.)
Stocks That Will Hold Back Your Retirement: Macy’s (M)
Earlier this year I reported on the department store’s fourth-quarter results — a mixed bag. Still, I believed Macy’s, Inc. (NYSE:M) stock would continue rebounding from its woeful 2015 when it lost 45% of its value.
That didn’t happen. Since my Feb. 23 article, Macy’s is down about 17% as its results worsened and long-time CEO Terry Lundgren announced he was stepping down as CEO in 2017 so incoming boss Jeff Jennette could get to work reshaping the company to compete in the age of online retail.
I believe department stores can be successful. However, like any retailer, location plays a big part in the success or failure of its business. America has too many retail locations selling apparel at a time when people are spending less of their income on clothes, etc.
Macy’s needs less real estate and better stores — both of which won’t happen overnight. And then there’s the idea that only either Macy’s or Nordstrom, Inc. (NYSE:JWN) will survive the downsizing of retail in America. If that’s true, Nordstrom’s move into Canada probably gives it the upper hand.
Either way, the future is too unknown in the department store space for the average investor to risk their retirement savings on Macy’s — or anyone else for that matter.
M stock will hold back your retirement.
Stocks That Will Hold Back Your Retirement: Pandora Media (P)
I’m not going to spend a lot of time on this one because it’s pretty obvious why this stock is going to hold back your retirement.
Pandora Media, Inc. (NYSE:P) has only had one up year since going public in June 2011. But what a year it was, going from $9.18 to $26.60 in 2013’s 12 calendar months. Of course, the past is the past, and P shares are now at half that.
Macquarie analyst Amy Yong believes Pandora’s best chance is to be acquired by a strategic buyer interested in expanding their own digital audio entertainment platform. She sees $15 in its future.
Speculate if you must, but do not include this stock in your retirement portfolio.
Stocks That Will Hold Back Your Retirement: Prospect Capital Corporation (PSEC)
Seasoned investors will recognize Prospect Capital Corporation (NASDAQ:PSEC) as one of the many publicly traded business development companies (BDCs) that provide debt and/or equity to companies, public and private, in need of capital to finance their operations and growth.
BDCs have become extremely popular in recent years because of their double-digit yields at a time when 4% is considered generous. But they’re high for a reason; BDCs are required to distribute 90% of their taxable income to shareholders, which leaves little to reinvest in other businesses without issuing additional shares, fixed-rate debt, etc.
Essentially, BDCs are recycling capital, which makes it awfully tough to grow.
I don’t particularly have anything against Prospect itself. I’m simply using it as a proxy for the entire industry; they’re awfully volatile compared to banks and other asset managers. In Prospect’s case, it has achieved an annualized return of 2.7% over the past decade — 473 basis points less than the S&P 500.
Too much risk for too little return.
Stocks That Will Hold Back Your Retirement: Tesaro (TSRO)
Biotech company Tesaro Inc (TSRO) currently has one product on the market — Varubi, a drug that aids in the prevention of delayed nausea and vomiting associated with chemotherapy and the treatment of cancer — but many others in the pipeline intended to help cancer patients cope with their diseases.
These types of businesses wouldn’t be necessary if cancer didn’t exist, but sadly that’s not the case. In that regard, it’s hard not to look more favorably upon them.
However, supporting what they do doesn’t necessarily mean you should invest in Tesoro’s stock.
A big red flag came in late June when TSRO stock jumped 82% in one day on news a study involving its experimental medicine, niraparib, helped slow the growth of ovarian tumors. That one piece of news increased the company’s market value by $2 billion.
I’m sure investors in its stock are enjoying their newfound wealth, but in the biotech world that can be fleeting. If you must have biotech in your 401k or IRA, consider an ETF where you can spread the risk over a number of different companies.
To simply own TSRO on its own could be a big detriment to your retirement.
Stocks That Will Hold Back Your Retirement: Tronc (TRNC)
If you know what Tronc Inc (TRNC) does simply by looking at its name, then you need to get yourself on a TV game show.
Because you’re smarter than the rest of us.
Quite literally one of the worst rebrandings in the history of public companies, Tronc is the publishing arm of the former Tribune Co., which was split into two back in August 2014.
The publishing unit, however, is an entirely different matter. The Los Angeles Times might be a great paper, but unless it and the rest of its old school newspapers can figure out how to profitably grow, Tronc is a dog of a stock and certainly not worthy of your retirement funds.
Stocks That Will Hold Back Your Retirement: Wayfair (W)
A TV show I regularly watch is Property Brothers — Drew and Jonathan Scott’s take on the home improvement industry. It’s big business showing people how to get more value from their homes.
Wayfair Inc (NYSE:W) is one of the product placements in the series, and it makes perfect sense given the popularity of the show. But this isn’t a story about home improvement — it’s a story about portfolio improvement.
So, why is Wayfair a burden?
That’s a fair question, given that W stock is up 30% since going public in October 2014 compared to 12% for the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). Everyone loves a winner!
Not to sound like a broken record, but the company has generated operating losses of $81 million, $148 million, $15 million and $21 million in the last four years. As revenues grow, so too do advertising costs. In 2012, it spent $66 million on advertising to generate $601 million in revenue. In 2015, it spent $278 million to generate $2.2 billion in revenue. In the span of three years, its advertising expense as a percentage of revenue has gone up 166 basis points.
At what point does that translate into profits? It doesn’t matter. You’re saving for retirement, not trying to be a great venture capitalist. Next.
Stocks That Will Hold Back Your Retirement: Yahoo (YHOO)
The best retirement stocks are those companies that will be around in 10 or 20 years. Yahoo! Inc. (NASDAQ:YHOO) clearly doesn’t fit that mold, with the company currently trying to unload its core assets in an auction that is expected to fetch anywhere from $3 billion to $10 billion from interested parties such as Verizon Communications Inc. (NYSE:VZ).
InvestorPlace contributor James Brumley does a good job explaining why Yahoo shouldn’t accept lowball offers like the $3 billion one from Verizon. Clearly, with its core business generating more than $4 billion in annual revenue, these assets are worth more than what Verizon’s offering to pay. How much more I suppose we’ll find out in due time.
The point being is that retirement portfolios should be filled with long-term plays that pay dividends on a growing basis year after year. With Yahoo’s stake in Alibaba Group Holding Ltd (NYSE:BABA) worth more than the company’s entire market cap, a bet on it now is nothing but short-term speculation.
Leave that for the pros.
Stocks That Will Hold Back Your Retirement: Zynga Inc (ZNGA)
A couple of years ago, my wife was addicted to playing King Digital’s Candy Crush Saga on her iPhone. It seemed everywhere we went she was playing that darn game.
And now she doesn’t. Her interest simply withered and died.
That’s the risk of mobile games.
In Zynga Inc’s (NASDAQ:ZNGA) case, it got the brushoff from Facebook Inc (NASDAQ:FB), which led to the maker of FarmVille and other games transitioning from the social media’s own platform to its own mobile games — a transition IPO Playbook Editor Tom Taulli suggests isn’t going too well, with its monthly active users in a free fall.
Zynga has almost $1 per share in cash, so it’s conceivable that Zynga could stick around for several years without a serious cash crunch. But unless CEO Frank Gibeau can figure things out in the next 12 months, its death march will accelerate.
You don’t want to have anything to do with ZNGA stock.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.