Investing in growth stocks that show promise of high returns in the future is always an enticing option for investors. However, if there’s one thing this year has shown us it’s that nothing is for certain. Like much of the economy, the stock market tanked following the onset of the novel coronavirus pandemic. Many growth stocks that were once illustrious went down with it.
2020 was by far one of the most volatile years in the history of the stock market. In just the first five weeks of Q1, the S&P 500 dipped by 34%. This created panic among investors resulting in a mass selloff. However, much of the market has recouped its losses since then.
With the second-wave of the coronavirus sweeping its way across the nation, we are definitely not out of the woods yet. Some companies (especially those that cater to the remote economy) have thrived this year, but others are running on fumes. Here’s a look at seven growth stocks to avoid at all costs:
- American Airlines (NASDAQ:AAL)
- Carnival Corp (NYSE:CCL)
- Sorrento Therapeutics (NASDAQ:SRNE)
- AT&T (NYSE:T)
- Wells Fargo (NYSE:WFC)
- Aurora Cannabis (NYSE:ACB)
- Restaurant Brands International (NYSE:QSR)
Growth Stocks: American Airlines (AAL)
One industry that has felt the brunt of the economic fallout is airlines. With the travel down more than 50% this year, it would be wise not to put your money behind airline stocks. American Airlines, once a high-flyer in the sector, hit some major turbulence.
The airline reported some poor results in its last quarter with a cash burn rate of $55 million and over $40 billion in debt. Although the cash burn rate has declined since then, the company is nowhere near full recovery.
Carnival Corp (CCL)
2020 brought the travel and leisure industry to a complete standstill. In line with our previous stock, another industry to avoid is cruise lines. When news of the pandemic first broke out, cruise ship company, Carnival, made headlines for mishandling the Covid-19 outbreak on board.
Cruise ships soon became a big no-no thanks to the Centers for Disease Control and Prevention guidelines that placed a ban on sailing activities. This led Carnival stock to tank by nearly 72% this year and its future isn’t looking too bright. The cruise line hopes to set sail in December, but this is unlikely given the recent surge in case numbers. It would be best to hold off on this growth stock until there is a positive development.
Sorrento Therapeutics (SRNE)
With the race to the Covid-vaccine underway, biotech stocks are having a major moment. But, like many industries, not all stocks are created equal. Sorrento Therapeutics, a biotech firm, saw a 200% rally in its stock this year. And while this seems like a great buy at face value, the fundamentals show otherwise.
In its most recent quarter, the company reported a cash position of just $24.4 million and sustained losses of $259 million. The company has numerous projects in the pipeline but its limited financial resources could bring the research to a halt. Furthermore, given the unpredictable quality of vaccine trials, Sorrento Therapeutics could be in some hot water if its earnings go lower. Stay away from this stock until the company improves its bottom line.
Telecom companies have been feeling the heat since the start of the pandemic and AT&T is one among them. Although the company’s dividend yield is an attractive feature, its long-term growth potential is little to none. One reason for this is the massive amount of debt on its books.
As of Q2, the telecom giant had reported a cash balance of 16.9 billion, while its debt level was $169 billion. With a market cap of just over $200 million, that debt number made up 85% of its total valuation. When it comes to growth investing, you want to buy stocks that you can hold over a longer period of time. At its current position, AT&T is a growth stock that’s not worth your money.
Wells Fargo (WFC)
Wells Fargo is a large financial conglomerate but this year has not been too kind to this growth stock. The company’s stock is down by nearly 54% this year and that’s just scratching the surface. As a result of the pandemic, the bank was forced to downsize its commercial banking division.
In its most recent quarter, the company’s profit fell by 56%. The total profit was $2.04 billion, which is lower than its profit of $4.61 billion from the previous year. A major reason for this poor performance is because lenders were forced to set aside money for loan defaults. This led the bank to cut its dividend from 51 cents to 1 cent.
Wells Fargo’s future isn’t looking too bright either. Analysts estimate the company will face an 11% decline in earnings for the period ended December 2020. With more downside ahead, this stock is not a good buy this year.
Aurora Cannabis (ACB)
The Canadian pot stock, Aurora Cannabis was once a leader in the marijuana industry. But things have taken a turn for the worse in the last year and a half. The company has shutdown more than half of its facilities and revenue numbers are in the dumps. ACB stock has no equity either.
To add fuel to this fire, Aurora’s stock price is down 90% this year. In order to keep its sales numbers up, it will need to compete with the illegal marijuana market for customers. This has forced ACB to dilute much of its business, selling as much as $350 million worth of shares. Despite the grim outlook, Aurora is confident that it will achieve profitability by 2021. But it would be wise to hold off on this growth stock until its financial performance improves.
Restaurant Brands International (QSR)
At face value, Restaurant Brands International seems like a win-win investment. The company owns major brands like Tim Hortons, Burger King and Popeyes Louisiana Kitchen. However, with the pandemic-induced lockdowns this year, things aren’t looking too great.
RBI stock lost 25% of its value in the second quarter and earnings per share (EPS) declined by 53.5%. While the company has picked up the pieces since then, the revenue numbers still remain low. When looking ahead, it is unclear if RBI will come out of the pandemic unscathed. Moreover, the second wave of Covid-19 has created an environment of uncertainty and the restaurant industry could face more blows.
The future is unclear for RBI and it would be wise to hold off on this growth stock for the rest of the year.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.