Under the remarkable bull market cycle that materialized soon after the spring doldrums of 2020, the idea of red-flag stocks to avoid like the plague would have seemed a distant and ridiculous concept. However, amid geopolitical flashpoints, stubbornly high inflation, and a banking sector crisis, it’s never been more important to cut losses.
As ChatGPT reminds us, the process of identifying risky stocks to avoid like the plague helps us to avoid emotional decision-making. “When a stock you own starts to decline in value, it can be tempting to hold onto it in the hope that it will bounce back. However, this emotional decision-making can lead to holding onto a losing position for too long, which can result in even larger losses.” Of course, an ounce of prevention is worth a pound of cure. That means you should be cognizant of stocks to avoid like the plague that could tank your portfolio so that you don’t have to make such difficult decisions.
|AREB||American Rebel Holdings||$0.14|
PacWest Bancorp (PACW)
With the implosion of PacWest Bancorp (NASDAQ:PACW) – shedding nearly 23% of market value on May 11 – it’s time for investors to recognize the obvious: PACW represents one of the red-flag stocks to avoid like the plague. According to CNBC, PacWest reported that its deposits fell 9.5% last week. Interestingly, the regional bank stated that “the majority of those outflows came after media reports that said the lender was exploring strategic options.”
Nevertheless, the deposits only represent one component of why PACW sits among risky stocks to avoid like the plague. Throughout this banking sector crisis, the rescuing federal agencies have been consistent: the U.S. will protect depositors. It will not protect shareholders of failed banks. Therefore, investors have little reason to trust PacWest and similarly troubled regional financial firms.
As of this writing, TipRanks reports that the consensus view of PACW is a hold. As well, the average price target stands at $17.17, implying over 265% upside potential. I imagine that’s going to change pretty soon.
Lordstown Motors (RIDE)
There are red-flag stocks to avoid like the plague in the electric vehicle sphere and then there’s Lordstown Motors (NASDAQ:RIDE). Just in the past 30 days, RIDE stock tumbled nearly 33%. If you’ve been following the upstart EV manufacturer, Hon Hai Precision Industry (OTCMKTS:HNHPF) – which also goes by Foxconn Technology – threatened to pull out of a funding agreement.
Naturally, the overhang devastated Lordstown, which already sits in a precarious financial position. In a regulatory filing, management warned that not resolving the dispute could force the company to curtail operations. In the worst-case scenario, Lordstown may cease operations altogether and seek bankruptcy protection.
Even without the drama, Lordstown ranks among stocks to avoid like the plague that could crash. Notably, the company struggles to launch its Endurance electric truck, which it had to recall. If that wasn’t enough, analysts peg RIDE stock as a moderate sell. While the average price target of $2 implies over 472% upside potential, this forecast should change soon enough.
Blue Apron (APRN)
A meal-kit delivery service, Blue Apron (NYSE:APRN) has really only delivered disappointment to longtime shareholders. While it got off to an auspicious start to the new year, when the company released its fourth quarter of 2022 earnings results, APRN fell almost 26% on the day. Since the Jan. opener, APRN gave up nearly 40% of its equity value. Thus, it’s one of the red-flag stocks to avoid like the plague.
Fundamentally, the problem centers on relevance. In the pre-pandemic environment, several professionals lacked time to cook wholesome meals for their families. All other things being equal, Blue Apron supposedly filled a critical niche. But even during the pre-pandemic timeframe, APRN struggled badly.
With millions of workers either working hybrid schedules or fully remote, these folks have plenty of time on their hands. And because of this new reality, Blue Apron doesn’t make a whole lot of sense. I guess that’s why if you rounded up, APRN suffers a 100% loss. It’s a no-brainer inclusion for stocks to avoid like the plague that are overvalued.
Icahn Enterprises (IEP)
If you follow the news regarding billionaire Carl Icahn, you’ll know that his conglomerate Icahn Enterprises (NASDAQ:IEP) courts serious trouble. Several days ago, short-selling research firm Hindenburg Research blasted the company for primarily overvaluing its holdings. Colorfully, Hindenburg remarked that IEP ran a “Ponzi-like” structure to pay dividends.
Of course, Icahn wasn’t too happy about the accusation and the harsh research report. Responding to the short seller, Icahn stated, “Hindenburg Research, founded by Nathan Anderson, would be more aptly named Blitzkrieg Research given its tactics of wantonly destroying property and harming innocent civilians.”
Unfortunately, IEP stock has looked like a shell of its former self. Since the Jan. opener, shares slipped nearly 39%. Bluntly speaking, it appears the market finds Hindenburg more credible than IEP’s desperate defenses. To be fair, the short seller did make some prescient calls in the past. Given the extreme loss and inability of the bulls to march higher, IEP ranks among the red-flag stocks to avoid like the plague.
Peloton Interactive (PTON)
Once a popular – and somewhat controversial in a goofy way – enterprise, Peloton Interactive (NASDAQ:PTON) has unfortunately fallen into the category of red-flag stocks to avoid like the plague. Recently, the company announced that it must recall approximately 2.2 million units of its famous exercise bikes. Basically, the seat post can break at the weld joint, potentially causing injuries. Further, the recall notice cited 13 injuries, including wrist fractures and lacerations.
Ouch. Unsurprisingly, PTON fell sharply on the disclosure, losing nearly 9% for the May 11 session. Since the start of the year, PTON gave up almost 16% of its market value. On the surface, that doesn’t seem too terrible. However, in the past 365 days, shares gave up roughly 50%. So yes, the exercise equipment maker deserves to be on the list of stocks to avoid like the plague that could tank your portfolio.
Since making its public market debut, PTON declined by nearly 73%. Fundamentally, it suffers from a relevancy problem as people no longer fear the SARS-CoV-2 virus. Therefore, you should probably steer clear.
Back during the time when the Internet’s prominence rapidly expanded but social media wasn’t a demigod, Groupon (NASDAQ:GRPN) made sense. The consumer discount-facilitating enterprise brought people together, enabling experiences and discoveries. However, with social media becoming so prominent today, Groupon essentially became irrelevant. Therefore, it’s one of the red-flag stocks to avoid like the plague.
Basically, companies enjoy direct communication with their customers and core audience members. Further, with the power of word of mouth, advertising entities can spread their brands widely without dealing with third-party entities. Plus, you have incredibly popular social media influencers that offer a bigger bang for the buck than Groupon. Let’s face it, GRPN seems to be delaying the inevitable. Since the January opener, shares gave up more than 62% of their equity value. In the past five years, they’re down nearly 97%. Therefore, it’s one of the risky stocks to avoid like the plague.
American Rebel (AREB)
Headquartered in Nashville, Tennessee, American Rebel (NASDAQ:AREB) specializes in building gun safes and firearms-related accessories. In particular, the latter category involves backpacks and apparel that are geared for people with concealed carry weapon (CCW) licenses. Now, you can probably understand why AREB ranks among the red-flag stocks to avoid like the plague.
Unfortunately, American Rebel failed to capitalize on the incredible popularity of shooting sports in America. Fundamentally, the enterprise suffers from controversy without distinction. In other words, a safe is a safe is a safe.
On the other hand, the CCW accessory business unit may suffer from serious political pushback. For obvious reasons, the political environment pushes for more gun control. Therefore, the idea of profiting from a CCW-oriented business seems ambitious, to put it diplomatically. Finally, the chart performance distracts. At the time of writing, AREB trades hands at 15 cents per share. Since the beginning of this year, AREB gave up over 23% of its equity value. In the past 365 days, it’s down almost 81%. Don’t fight the tape. It’s one of the stocks to avoid like the plague that could crash.
On the date of publication, Josh Enomoto 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.