Tech stocks can deliver incredible growth. And, as many investors have found in recent months, they can have periods where the market turns against them.
The tech stocks on this list aren’t just caught up in a broader tech sector selloff. They’re companies with problems. Some have passed their best-before date. Some have seen their business hit hard by the pandemic, with a cloudy recovery picture. Others are Chinese tech stocks facing challenges like delisting. Some are ensnarled in legal disputes.
For one reason or another, these seven tech stocks are best avoided:
- Cerner (NASDAQ:CERN)
- Equinix (NASDAQ:EQIX)
- Jack Henry & Associates (NASDAQ:JKHY)
- 51job (NASDAQ:JOBS)
- Leidos (NYSE:LDOS)
- Momo (NASDAQ:MOMO)
- SAP SE (NYSE:SAP)
If you need another reason to pass them by, each of the stocks on this list also rates an “F” in Portfolio Grader.
F-Rated Tech Stocks to Sell: Cerner (CERN)
Cerner Corporation provides IT services, devices and hardware for the health industry. It has been in operation for 40 years. You’d think that during the coronavirus pandemic, when hospitals and vaccine research labs are going all out, that an established company providing tech for these facilities would be booming. Instead, Cerner saw full-year 2020 revenue decline by 3%.
There was a time when CERN stock was on an impressive growth trajectory, offering solid returns. That time was 2009 through early 2015. Since then, CERN has been on a roller coaster of alternating slumps and rallies. Turbulence can be tolerated if the growth is still there, but with CERN stock that is not the case. Cerner shares today are worth almost exactly what they were six years ago.
This is not a tech stock you want to add to your portfolio.
Equinix operates over 220 data centers spread across the globe. Its servers host some of the biggest tech companies and high profile customers like video streaming services. In 2020, pandemic trends including streaming video, online shopping, remote work and online gaming showed just how important these data centers are.
However, the popularity of online services makes the middle-man position of Equinix precarious. Hyperscaler web services — the tech giants that dominate the cloud computing market — may be more inclined to build their own data centers rather than lease space from Equinix. In addition, data centers are huge consumers of energy. With a focus on fighting climate change, the companies that operate them are going to be under increasing pressure. Measures to reduce their carbon footprint such as adopting renewable energy sources will be a big expense.
EQIX stock posted solid growth for five years starting in 2019, but that peaked last October. Shares are down around 18% from October levels. Given the headwinds Equinix faces, this may very well be more than a temporary dip. I’d stay away from it.
Jack Henry & Associates (JKHY)
Missouri-based Jack Henry & Associates provides technology and payment processing services to the financial industry.
That is a space that is becoming increasingly crowded and many of the players in the space are significantly larger than Jack Henry & Associates. JKHY stock plummeted last August — dropping 13% in a single session — when Q4 revenue missed expectations and the company issued underwhelming 2021 guidance.
JKHY stock performed well over the previous five years, but it has been all downhill for the past 8 months. Most investment analysts have had a “Hold” rating for JKHY for months, while they wait to see if a recovery is in the cards. At this point, I’d consider this a tech stock to avoid.
51job is a Chinese employment recruitment website and a provider of HR outsourcing services. The company is active primarily in China.
Last September, Asian private equity firm DCP Capital Partners made a takeover offer for 51job, offering $79.05 per common share. That news resulted in JOBS stock popping, with a single-day gain of over 16%.
However, the takeover bid has not moved forward. At this point, JOBS stock is down 42% from its 2018 all-time high. Trading at around $64, it’s also down 20% from last September. Add the concern about de-listing faced by Chinese stocks to the mix, and 51job is one of the tech stocks I wouldn’t go near.
Leidos Holdings is a Boston-based tech company with four primary lines of business: defense, aviation, IT and biomedical research.
That’s a broad portfolio. After seven years of treading water or losing ground, the mix eventually helped LDOS stock achieve steady growth. Shares more than doubled in value between 2015 and 2019. Things really heated up in 2020, though. In February of that year, the company announced it was spending $1 billion to acquire an established provider of airport and critical infrastructure screening products.
Then the pandemic hit and air travel was gutted.
A year later, and the situation isn’t looking so rosy for investors. In its Q4, Leidos reported revenue of $3.25 billion, which missed estimates. In addition, a series of class action lawsuits have now been filed against the company. Among the accusations are that shareholders were misled because the security systems the company acquired were faulty and failed to detect explosives.
LDOS stock is currently down about 12% from its 2021 high and this could get much worse before it gets better. In addition, aviation in general is liable to be a drag on the company until flying returns to normal. That could be years. Given the turmoil around Leidos — and the fact that shares are currently worth less now than they were at the start of 2020 — I would be inclined to avoid this one.
Chinese social media company Momo saw shares soar after its Nasdaq debut at the end of 2014. Investors saw plenty to like — although there were some troubling accusations of unethical conduct by the company’s founder that dampened the celebrations somewhat.
Momo’s focus at launch was on dating, with plans to expand into mobile games and then live video. Revenue from paying members would be supplemented by advertising. That’s pretty much by-the-book for a social media startup.
MOMO stock hit its peak in mid-2018, briefly topping the $53 level. It has been downhill since then.
The company’s apps have been the subject of Chinese government crackdowns, competition from larger Chinese social media companies has increased, and then there’s the whole de-listing of Chinese stocks threat. Currently trading at around $15.50, shares in Momo have lost over 70% of their value over the past three years. That’s not the trajectory you want to see in tech stocks for your portfolio.
Finally, what is probably the most recognizable name on this list of F-rated tech stocks: SAP. The German enterprise software giant has been in the business since the 1970s and has a market cap of over $160 billion.
Like many enterprise software companies, SAP has been working to transition to a cloud-based business. Doing so can be a rocky road, especially for a big, established company like SAP. Making the transition period more painful was the pandemic, which left customers putting off IT projects and trying to cut costs. This led to the largest single-day loss for SAP stock since 2008 when the company reported disappointing Q3 revenue and guidance last October.
It has yet to recover. In an up and down year so far, SAP stock remains off its 2020 high by 22%. Given the uncertainty remaining in the global business market with Covid-19 still a critical factor, SAP isn’t a tech stock I’d be looking at right now.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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