International stocks and global stock markets, in general, have wavered in the wake of the novel coronavirus pandemic. In countries where there is low institutional participation and susceptibility to herd-like behavior, the impact on investor sentiment is more pronounced. Some sectors such as travel, tourism, real estate, and manufacturing have been more impaired than others.
Despite the interdependencies of global stock markets, it is also true that some countries have fared better in controlling the virus than others. The United States is among the countries most affected by the virus, which is constricting the pace of its recovery. Moreover, investing in U.S. stocks is becoming more of a bet on the technology sector. Though tech stocks did well in 2020, similar returns might be challenging to replicate with the Democrats tightening regulations.
With these factors in mind, there are several international stocks that investors should steer clear of for now. They are:
- TAL Education Group (NYSE:TAL)
- Vipshop Holdings (NYSE:VIPS)
- Kandi Technologies(NASDAQ:KNDI)
- AuroraCannabis (NYSE:ACB)
- Barrick Gold(NYSE:GOLD)
- Nokia stock (NYSE:NOK)
International Stocks to Avoid: TAL Education Group (TAL)
TAL education group is an education services company that primarily focuses on K-12 students in China. It owns and operates more than 800 learning centers across China that were significantly impacted by the Covid-19 induced restrictions. Unfortunately for TAL stock, it has an ineffective online presence in a market that is highly competitive.
Earnings results for the company have naturally taken a remarkable hit from the pandemic. The lack of online exposure has cost the company dearly when the online K-12 education market in China is booming.
The contribution of the company’s online app called Xueersi has risen by roughly 9% in its most recent quarter. However, its performance pales in comparison to competitor apps such as VIPKID and Zuoyebang. Therefore, there is little upside to investing in the stock at this time.
Vipshop Holdings (VIPS)
Vipshop Holdings is a Chinese online discount retailer that partners with more than 17,000 domestic and international producers. Its ability to procure massive amounts of products and offer deep discounts enables it to enjoy significant economies of scale.
The company, however, is up against some serious competition, which continues to chomp away at its market share. Also, its recent foray into the traditional brick-and-mortar retail business diminished the outlook for VIPS stock.
The company’s earnings history has been relatively strong, with its five-year revenue growth at 26%. However, the problem with its business model is that it is unable to command a price premium. Hence, its gross margin for the trailing-twelve-months is at 21.4%, 36.2% lower than the sector average.
Additionally, its EBITDA margin is also roughly 18% lower than the sector average. Moreover, its expansion into physical stores is likely to increase opportunity costs amid the diminishing returns on brick-and-mortar retailing.
International Stocks to Avoid: Kandi Technologies (KNDI)
Kandi Technologies is a Chinese electric vehicle company that produces EV components and off-road electric vehicles. It was founded in 2002, just a year before EV giant Tesla, but the companies have been on distinct trajectories.
Kandi has been unable to expand revenue by meaningful numbers since its inception. Its weak fundamentals and bleak revenue growth prospects make KNDI stock an incredibly risky bet.
Its third-quarter results recently reported a 40.9% drop in revenue on a year-over-year basis. Moreover, its receivables stand at over $100 million, which is strange for a company with low revenues. Additionally, short-seller Hindenburg has accused the company of fraud over sales to related parties and having a notorious auditor. Kandi plans to move into the US market, but with such weak fundamentals and its lackluster product, it is likely to fail.
Aurora Cannabis (ACB)
Canadian cannabis giant Aurora Cannabis was struggling to boost growth even before the pandemic took its course. The company recently closed out another equity raise to control its rapidly growing cash burn.
With exceptionally high operating expenses and flat revenue, ACB stock is in a world of trouble.
The company is guilty of making some poor decisions, which has significantly impacted its financial positioning. It invested heavily in expensive greenhouses, overpaid for acquisitions and poorly managed its debt. Its debt currently stands at $380.8 million, while its cash balance is at just $113.3 million.
On top of that, recent sales data on Canadian cannabis suggests a plateauing of the industry. Hence, nothing seems to be going right for the company at this stage.
International Stocks to Avoid: Barrick Gold (GOLD)
Gold-mining giant Barrick Gold has had a relatively decent 2020 on paper. Revenue growth dipped compared to 2019 levels but was still impressive overall. However, its sales were buffed up by higher metal prices, which should normalize this year.
The six-month returns for GOLD stock are at a negative 39%.
Lower production at the company’s flagship Porgera Mine resulted in a 13% reduction in its production. The Papua New Guinea government refused to extend the mining license at its massive Porgera Mine. Moreover, the company divested its hugely productive Kalgoorlie Mine in western Australia. These headwinds weighed down Barrick’s performance, which improved margins have largely offset.
Meanwhile, GOLD stock is trading at a 113% higher forward price to sales multiple than the sector average.
European low-cost carrier Ryanair had a dismal 2020 like most companies in the sector. Revenue dropped by double-digits in the year, and near-term traffic recovery will be slower than expected.
The company has adapted well to the unprecedented pandemic situation, but its relative success is more than reflected in RYAAY stock’s price.
Revenue in its most recent quarter was down 82% year-over-year. Loss per share widened by a significant margin sequentially to $1.65. Operational costs are still considerably high, which has weighed down its margins. Moreover, extended lockdowns and the uncertainty surrounding the pandemic have led to Ryanair reducing traffic forecasts.
Despite these weaknesses, the stock’s forward price to sales to ratio trades at 578% higher than the sector average.
International Stocks to Avoid: Nokia (NOK)
Finnish telecom equipment provider Nokia is all-in on cementing its positioning in the 5G industry but appears to have fallen short. Its competitors in Huawei and Ericsson (NYSE:ERIC) seem to be ahead in the 5G race by a fair margin. Nokia continues to go through strategic shifts but appears to be lacking a real catalyst. NOK stock offers little incentive to investors, with six-month returns at a negative 5%.
With the Trump administration’s push to keep Huawei against the fence, Nokia and Ericsson were given an open field to expand their market shares. However, with Democrat Joe Biden’s election, the aggressive EU-US position on China should loosen up considerably. Therefore, the geopolitical advantage for Nokia is likely to fade away.
Earnings performance has been lackluster for Nokia, with negative revenue growth for the past four quarters. The company also slashed forecasts for this year, leaving little value for investors at this stage.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.