In a remarkably resilient market, giving a “sell” rating can be an incredibly taxing process. Warren Buffett, champion of buy-and-hold investing, has famously said that “our favorite holding period is forever.” But even in a bull market, there are stocks to avoid.
Rechecking and trimming your holdings is an important part of portfolio management. Businesses go through ebbs and flows, especially during unprecedented events like a pandemic, and it can severely impact your holdings. Therefore it is best to proceed with caution and ensure that you collect your profits and exit positions when suitable.
There are several reasons to sell a stock, and they’re not always a rebuke of the company or its operating model. With that in mind, let’s look at seven stocks to avoid as we move further into August:
- Nielsen Holdings (NYSE:NLSN)
- Simon Property Group (NYSE:SPG)
- Nikola (NASDAQ:NKLA)
- Workhorse (NASDAQ:WKHS)
- Robinhood Markets (NASDAQ:HOOD)
- Tata Motors (NYSE:TTM)
- BMW (OTCMKTS:BMWYY)
Stocks to Avoid: Nielsen Holdings (NLSN)
In the ’90s, Nielsen ratings used to be a big deal for television programming and advertising decisions. But the landscape has changed quite rapidly, with TV ad sales consistently declining because fewer people are watching. Many consumers prefer to stream digital content on mobile devices instead.
Nielsen is battling a secular trend — one that shows no signs of stopping. The entertainment industry is increasingly shifting to deliver online offerings. And streaming companies like Netflix (NASDAQ:NFLX) don’t need Nielsen. They can track trends on their own, with an enormous pool of data at their disposal.
During the last five years, the top line has grown by a mere 0.4%, while earnings have shrunk 29.9%. It highlights an operating model that just isn’t cutting it in the era of streaming. If you still have this one in your portfolio, it would be best to cut your losses and part with your investment.
Simon Property Group (SPG)
Income investors love REITs (real estate investment trusts) because REITs are required to pay at least 90% of taxable income to shareholders, leading to above-average dividend yields. But the operating structure of every REIT is different.
SPG concentrates on retail, which is a touchy subject among investors due to the rise of e-commerce.
Regardless, it might seem like the wrong time to avoid SPG. After all, last year, we spent most of our time cooped up in our houses for the last year-plus. That means there is a lot of pent-up demand for the indoor location-based shopping experience.
But there are three factors why this one is one of the stocks to avoid in the current climate.
The second is that the stock already has a one-year dividend-adjusted return of 126.8%. Investors have already priced in the bounceback.
And finally, management made some unpopular moves during the pandemic, such as agreeing to buy luxury mall owner Taubman Centers. Perhaps not the best idea, considering the state of retail during the pandemic. SPG wanted out of the deal by June. But after a lengthy court battle, the two agreed to revise the merger terms, with SPG now paying $43 per share rather than the initial $52.50.
A combination of these factors leads me to believe the stock doesn’t deserve a place in your portfolio at this time.
If the REIT can produce consistent FFO growth and realize the synergies from the merger in the forthcoming quarters, that could change.
Stocks to Avoid: Nikola (NKLA)
The hits keep coming for Nikola. The embattled hydrogen-electric trucks maker has faced one legal challenge after another during the last year. And its troubles do not seem likely to end anytime soon.
Last September, short-seller Hindenburg Research issued a report titled: “Nikola: How to parlay an Ocean of Lies into a Partnership with the Largest Auto OEM in America,” which accused the electric-vehicle company and its CEO, Trevor Milton, of overhyping the capabilities of its electric semi-truck.
The U.S. Securities and Exchange Commission (SEC) initiated a probe when the allegations emerged, and the regulatory agency has indicted Milton, who stepped down as Nikola’s executive chairman last September, on three charges that pertain to misleading investors.
These allegations have soured investors on Nikola, which was shaping up to be an interesting play.
Electric delivery van maker Workhorse Group has had a bumpy 2021 thus far. It was a huge blow to the company when, in late February, a coveted $6.3 billion United States Postal Service (USPS) contract ended up going to rival Oshkosh (NYSE:OSK). The contract replaced the white, right-hand drive and delivery trucks with the Next Generation Delivery Vehicle (NGDV).
Workhorse was considered a frontrunner for the contract. Therefore, investors piled into the stock. But when the Cincinnati, Ohio-based company lost out, the penny dropped, and shares have never recovered. The stock has lost 20% in the last month alone and shows no signs of recovering lost ground.
For WKHS bulls who want to tough it out, there are a few positives I should highlight. CEO Duane Hughes stepped down on July 29 and was replaced by Rick Dauch, an auto industry veteran. Supply chain disruptions, missed production targets and the USPS debacle combined to create the perfect storm for the outgoing executive. And in the first quarter, the company managed to beat analysts’ estimates by a handsome margin.
Overall though, it just isn’t enough to satisfy a return to greener pastures. I would keep an eye on the latest developments but avoid this stock for now.
Stocks to Avoid: Robinhood (HOOD)
Robinhood Markets is an incredibly exciting company because it has revolutionized investing. Traditional stock market investing involved several entry barriers, broker’s fees, spreads and lofty minimum investment amounts.
Robinhood, the Silicon Valley brainchild of co-founders Baiju Bhatt and Vladimir Tenev, is trying to democratize the stock market for the average American, who is looking for an alternative to a savings account.
Bhatt and Tenev’s app-based, zero-fee brokerage platform is the major driving force behind this year’s retail investor phenomenon. In the first quarter, the company reported an astonishing 309% revenue growth. It also said it had 18 million funded accounts, up from just 7.2 million accounts in March 2020, and manages $81 billion in total assets.
Nevertheless, Robinhood faces backlash from retail investors who feel snubbed due to the temporary restrictions on buying certain social media meme stocks. Although the company enforced restrictions to meet brokerage liquidity requirements, retail investors have turned against the company.
Also, the company has been subject to several legal battles. On the eve of its initial public offering (IPO), Robinhood revealed FINRA and the U.S. Securities and Exchange Commission had initiated a probe against the company related to potentially illegal Robinhood employee trading of meme stocks and the FINRA registration of CEO Vlad Tenev.
When you combine these factors, the stock becomes somewhat risky.
Tata Motors (TTM)
Tata Motors does not get much publicity in the U.S., even though it has been a towering juggernaut in the Indian market. Headquartered in Mumbai, Maharashtra, the Indian multinational automotive manufacturing company produces various internal-combustion engine (ICE) vehicles.
Tata is the largest Indian car manufacturer with a market share of over 37% at home and owns Jaguar – Land Rover. It produces its own electric vehicles like Tigor, Nexon and others. With such a dominant position within the Indian market, Tata bulls believe TTM is an all-weather stock.
But business dynamics in the Indian automobile sector are changing. Sales growth in the last five years for TTM has been sluggish. The global pandemic compounded the problems Tata Motors was already facing. The increased interest for its cars in recent months is because of pent-up demand. And we need to put the numbers in context.
And although Tata has its own EV product line, the portfolio of EV offerings is weak compared to the competition. General Motors (NYSE:GM), Ford Motor (NYSE:F) and Volkswagen (OTCMKTS:VWAGY), and others already are heavily investing in the EV market. And let’s not even talk about Tesla (NASDAQ:TSLA), who is chomping at the bit to get a hold of the Indian market.
Under these circumstances, it is best to avoid TTM and focus on other more forward-looking options.
Stocks to Avoid: BMW (BMWYY)
BMW has issued a bleak outlook for the second half, although the auto industry is raking in profits this year. The German premium carmaker itself has topped analyst estimates two times consecutively. And with the macroeconomic situation improving, investors generally felt upbeat about its prospects.
But the luxury-car maker warned of uncertain months ahead, as the global chip shortage worsens, even as it expects to lose sales of no more than 90,000 cars in 2021, which is less than 10% of first-half shipments. “We expect production restrictions to continue in the second half of the year and hence a corresponding impact on sales volumes,” Chief Financial Officer Nicolas Peter said in a statement.
The commentary comes at a time when things seemed to be going well for the car company. BMW’s high-end models are selling well. And the company reported earnings before interest and taxes of €5 billion in the second quarter, beating an average analyst estimate of €4 billion. Operating return from automaking jumped to 16%, doubling from its annual forecast of between 7% and 9%.
Still, in its own words, BMW is in for some tough times ahead.
On the publication date, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.