There’s been plenty of talk about how far the stock market correction can go from here. Market returns remain choppy, despite inflation rates cooling off last month and the likely slowdown in interest rate hikes. However, the likelihood of a sustained rally appears to be slim, so investors must consider penny stocks to avoid.
Wagering on penny stocks is a tried-and-tested strategy for investors seeking moon-shot gains. Naturally, many top growth stocks started from the bottom to offer multi-bagger returns.
With the current market sentiment, caution with penny stocks is important. More so, with the penny stocks discussed in the article, it’s best to avoid exposure to minimize the risk to your portfolio effectively.
Having said that, let’s look at three penny stocks that you’d want to discard from your portfolios and focus on more profitable long-term options.
Bakkt Holdings (BKKT)
Fintech trailblazer Bakkt Holdings (NYSE:BKKT), which empowered banks and merchants with crypto capabilities, saw its shares drop over 75% in value last year. The sharp decline reflects the transition from a booming crypto market to its dramatic crash last year.
Bakkt started as a global crypto exchange platform, but its business has evolved to include a digital asset marketplace, loyalty redemption services, and alternate payments. It went public in 2021 after completing its merger with shell company VPC Impact Acquisition Holdings, where a major portion of the merger consideration was recognized as intangibles.
However, earlier this year, the company wrote off a whopping $1.9 billion in goodwill and intangible assets. Naturally, the write-off was blamed for the deteriorating market conditions, lackluster partnerships, and product-fit challenges. With more challenges in the crypto realm, expect an even bumpier road ahead for BKKT.
Microvision (NASDAQ:MVIS) was a struggling scanning technology firm, pivoting to lidar technology in 2020 to turn its fortunes around. Fast-forward a couple of years later, and it has failed to ink a partnership with any major automotive company. Without a working relationship with any major original equipment manufacturer, it generates zero product-related revenue.
The lidar space is remarkably expensive, requiring tons of cash to finance research and development (R&D) requirements. With only $83 million in its cash till, the firm spent a whopping $30 million in R&D expenses in 2022, a 26% bump from the same period last year. It posted a 23% increase in its net loss last year compared to 2021.
Despite shedding its meme stock gains, it still trades at an alarming 33 times forward sales estimates.
Between cord-cutting and the coronavirus-led shutdowns, the bull-case was apparently set in stone for streaming service providers such as FuboTV(NYSE:FUBO). However, it hasn’t worked out that way for FUBO stock, with it losing 70% of its value last year.
The sports-first streaming service built its business model around the idea of marrying live sports and in-game betting. It was building its sportsbook, another revenue driver besides advertising and subscription revenues.
However, its lackluster numbers forced the company to pull the plug on its sportsbook last year effectively. Consequently, its stockholders are stuck with a business that spends over 90% of its sales on broadcasting rights. That leaves little wiggle room for the company to expand, with its net losses growing over 46.7% from last year. Therefore, its best to avoid penny stocks such as FUBO.
On the date of publication, Muslim 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
Consumer Discretionary, Automotive, Electric Vehicles, Financial, Fintech, Communications, Media, Streaming