The economy is roaring back to life and with that the number of stocks to sell is climbing. Abundant government stimulus in combination with an aggressive vaccine rollout has gotten things back on track surprisingly quickly. Investors have hopped on the reopening wave, riding all sorts of struggling companies as they’ve recovered from last year’s painful blow.
This has been especially true for companies that were not particularly successful prior to Covid-19. These companies attracted huge short interest as hedge funds thought the pandemic would be the final blow. Yet, thanks to Reddit, many of these firms ended up burning the shorts and launching to valuations in many cases even higher than they were prior to the virus.
However, not every heavily shorted company with dicey fundamentals is set for a swift turnaround. Indeed, it seems traders are too optimistic about the odds of many companies making a full recovery. If a company hasn’t bounced back from the economic shock by now, the clock is really starting to tick at this point. Simply put, these seven stocks to sell seem too far gone for even a major economic reopening bounce to salvage:
- Ashford Hospitality Trust (NYSE:AHT)
- Neptune Wellness Solutions (NASDAQ:NEPT)
- Phunware (NASDAQ:PHUN)
- Northern Dynasty (NYSEAMERICAN:NAK)
- XpresSpa (NASDAQ:XSPA)
- Genius Brands (NASDAQ:GNUS)
- Washington Prime Group (NYSE:WPG)
Stocks to Sell: Ashford Hospitality Trust (AHT)
Hotels on the moon. I wish I was kidding. Ashford Hospitality’s CEO, Rob Hays, tweeted about partnering with Elon Musk to build lunar hotels. This would be pretty ambitious for any hotel company, particularly since there won’t be tourists, electricity, food or other such niceties on the moon for at least a few more years. The idea of running moon tourist outposts seems pretty fantastical right now.
What’s worse is that this moon tourism utopia is coming from a company that has left its shareholders amid a flaming wreck back here on Earth. AHT stock has collapsed 95% over the past five years. Admittedly, with that sort of track record, a CEO might want to put millions of miles between himself and his shareholder base.
Why has Ashford imploded? Covid-19 is the easy answer, but it’s not a full excuse here. Ashford was already plunging prior to the pandemic. The company’s hotels required large amounts of capital to maintain; whereas, Ashford’s cash flow was relatively modest. Ashford paid out a huge dividend to keep shareholders happy and thus ran up a large debt load trying to juggle everything. Shifting travel preferences, particularly with the rise of AirBnB (NASDAQ:ABNB) already had folks worried that Ashford might head toward bankruptcy.
Once the pandemic hit, the company nearly failed. It only survived due to — incredibly — increasing its share count 10x to keep the company afloat. That’s right, if you owned 100 shares of AHT stock in 2019, your ownership position is down to the equivalent of 10 shares now. Management added insult to injury with not one but two reverse stock splits along the way, as shares have plunged from (split-adjusted) $60 not that long ago to just $1.94 now. Ashford’s CEO might consider spending less time tweeting about moon hotels and more in trying to stop the bleeding for his beleaguered shareholders.
Neptune Wellness Solutions (NEPT)
Neptune has been a penny stock — or near that territory — for at least a decade now. For an extended period, the company maintained a quixotic campaign to try to get consumers to embrace little-known krill oil. In theory, this was supposed to have similar functions to fish oil and improve people’s heart health. Amarin (NASDAQ:AMRN) has had a tough enough time trying to sell traditional fish oil, unsurprisingly, the krill effort failed to gain traction.
Instead of just suspending operations when management finally moved on from krill, a few years ago, Neptune turned to a then sizzling theme: Cannabis. It first sought to do specialty cannabis extractions for other businesses. In theory, there would be money to be made becoming a service provider for other bustling marijuana businesses. As happens with Neptune, however, this business failed, and management shut it down.
So now, the company is trying to pivot once again. For awhile, it was focusing on sanitation products to deal with Covid-19. There was also something about making baby food and becoming a consumer products company. Neptune is also working with cannabis for consumer applications and brands.
Will any of this turn out? Judging by the company’s track record, probably not. Will Neptune continue to issue more shares of its increasingly low-priced stock to fund its fledging operations, whatever they may be this year? Almost certainly. There is little reason whatsoever to be involved in NEPT stock as it seems to be little more than currency with which to pay Neptune’s underwhelming management team to keep launching half-baked new ventures.
Stocks to Sell: Phunwhare (PHUN)
Phunware is a small and struggling software developer. Last year, the size of its net loss significantly outstripped its total revenues. That’s never a great sign.
Also worth noting, Phunware’s profitability problem is likely to get worse going forward. That’s because the company earned a significant chunk of revenues last year from a group associated with former President Trump’s 2020 presidential campaign. For obvious reasons, this revenue is unlikely to recur in the summer and fall of 2021. Phunware also paid up to settle a legal dispute with Uber (NYSE:UBER) over allegations of fraudulent advertising.
Shares of PHUN stock soared in January. This was perhaps tied to the company presenting at an investor conference prior to then. Or, perhaps, shares rallied due to traders getting excited about the cryptocurrency Phuncoin. Additionally, PHUN stock is significantly shorted, so it may have gotten caught up in the general short squeeze euphoria. Regardless, the underlying business isn’t going anywhere fast. Thus, shareholders won’t be having much fun holding Phunware stock going forward.
Northern Dynasty (NAK)
Northern Dynasty is attempting to build a gold and copper mine in a remote corner of Alaska. It has been trying to do this for at least a decade now. Thus far, it has not succeeded.
President Obama opposed the project. The Trump Administration ruled against a mine permit for the site. And now President Biden has come out against the idea as well. Politicians from both parties have opposed the project within the state of Alaska as well. The proposed mine would be near one of the world’s largest salmon fisheries, and that has led to unified opposition between both environmentalists and local businesspeople.
Northern Dynasty still hopes to build its mine. In its latest effort, it has pivoted to making the case for the mine as a way to shore up the U.S.’ domestic copper supply. The world will need a ton of copper to build renewable energy projects, after all. Still, this seems like a longshot to get a mine approved that simply isn’t very popular in Alaska. Meanwhile, with the price of gold stagnating, mining stocks have started to slide in general. As such, expect more long years ahead for NAK stock, or at least for the duration of the current presidential administration.
Stocks to Sell: XpresSpa (XSPA)
You may remember XSPA stock from a year ago. For a hot minute, XpresSpa was a leading Covid-19 trading stock. In theory, XpresSpa was going to reposition its airport-based spas into Covid-19 testing facilities. This made a lot of sense. For one, the company’s airport personal care and relaxation business had never taken off and was losing large sums of money. Two, there was potentially a good business to be had in Covid-19 testing.
Alas, the testing business never really amounted to much either, as travelers largely went elsewhere for screening. As such, XpresSpa is at a crossroads. The old business didn’t really work, and the Covid-19 pivot was a stopgap measure at best. To that end, XpresSpa hasn’t rushed to reopen its spas now that the travel industry is coming back to life.
Rather, management has some plans around trying to build a broader travel health and wellness business. This could work. But the company’s track record is limited and rather underwhelming at that. Investors should demand much more tangible progress before investing in XPSA stock.
Genius Brands (GNUS)
I’ve been a long-time critic of children’s media company Genius Brands, and that’s been the right call. The television and streaming media firm continues to hope to find some sort of magic programming that will finally bring in meaningful revenues. There was also a streaming initiative along the way. If that was ever going to work, it would have been last year during the pandemic when kids were stuck at home.
And yet, it’s clearly not finding any traction. Last quarter, Genius brought in just $1.1 million of revenues. Meanwhile, it lost more than $6.7 million in the course of running its operations. Needless to say, spending that sort of money to bring in $1 million of quarterly revenues is not a sustainable business model. Genius Brands isn’t just struggling, it’s not even remotely close to making money.
Yet, traders — seemingly confused by Genius’ low share price but massive share count — continue to assign a $500 million market capitalization to this pipsqueak media firm. That valuation is much too optimistic.
Stocks to Sell: Washington Prime Group (WPG)
A lot of mall and shopping center operators have bounced back from Covid-19. Some, however, have not. Washington Prime decidedly falls in the latter group. Indeed, the company filed bankruptcy a month ago. At the time of filing, the company reported $4 billion in assets and $3.5 billion in debt.
WPG stock has not gone to $0 yet. Optimistic traders see that assets reportedly exceed liabilities and hold out hope for some sort of recovery in bankruptcy. This is unlikely, however. For one, legal fees will eat up a lot of any potential recovery. For another, Washington Prime owns many low-end regional malls in more rural areas of the country. It’s true that class-A malls in big cities are recovering, but small town American malls face a much tougher environment.
Washington Prime owns some good properties, no doubt. However, the company as a whole saw its cash flow decline sharply even prior to the pandemic. Given the abrupt downturn in mall retailers’ fortunes since then, demand for second-tier mall properties has dried up. Long story short, Washington Prime’s mall assets will take a haircut in bankruptcy, and that should render WPG stock essentially worthless.
There are good ways to play a comeback in American brick and mortar shopping, but this isn’t one of them. Instead, WPG ranks among the stocks to sell today due to its glum future.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.