Bank of America (NYSE:BAC) is one of the country’s largest banks. It’s also one of America’s most well-known stocks thanks to Warren Buffett’s 13% ownership stake. While the bank has found itself in a bit of hot water recently, I’ve learned over the years that the Oracle of Omaha isn’t afraid to own controversial stocks that get into trouble with regulators and consumers.
One that comes to mind is Wells Fargo (NYSE:WFC). Berkshire Hathaway (NYSE:BRK-B) held on to shares for several years after it came to light that the bank opened at least 3.5 million fraudulent accounts to meet growth targets. The holding company eventually bailed on the bank stock in mid-2022.
For its part, Bank of America was recently fined a combined $150 million by two government agencies — $90 million by the Consumer Financial Protection Bureau (CFPB) and $60 million by the Office of the Comptroller of the Currency. In addition, it had to refund $100 million to customers.
“Bank of America wrongfully withheld credit card rewards, double-dipped on fees, and opened accounts without consent,” CFPB Director Rohit Chopra said in a statement. “These practices are illegal and undermine customer trust.”
This wasn’t the first time Bank of America has been fined for illegal practices and it probably won’t be the last. While that doesn’t necessarily mean investors should throw in the towel on the stock (Buffett certainly isn’t), here are three other companies you may want to put on your list of stocks to avoid due to controversies surrounding them.
Alibaba (BABA)
Things have gotten so bad for Chinese e-commerce giant Alibaba (NYSE:BABA) that Chief Executive Officer (CEO) Daniel Zhang stepped down in June after eight years in the top job.
Officially, Zhang is stepping aside to focus on taking the company’s cloud unit public as part of Alibaba’s plan to split into six units. And many seem to believe the move is a good one.
“The appointment of Daniel to focus on running cloud is really a show of confidence and trust in him to take the most precious business and run with it to develop it in the right way given this age of generative artificial intelligence (AI),” said Brian Wong, a former Alibaba employee and author of the book, “The Tao of Alibaba”.
“The idea or expectation that one person could manage the business’ crown jewel Cloud and at the same time manage the entire Alibaba Group is an unreasonable expectation.”
Maybe so, but I find it hard to believe that Alibaba couldn’t have found someone capable of growing the cloud unit.
On July 10, Alibaba’s share price jumped on news that the $985 million fine levied by Chinese regulators against the company’s Ant Group affiliate could end the government’s crackdown on Chinese tech companies.
Zhang presided over the company during the period in question, as well as that of the $2.8 billion antitrust fine it got in 2021. It’s more than possible that he stepped down to appease regulators or, at the very least, to avoid any further confrontation with the government.
Once upon a time, I thought Alibaba stock was undervalued because of its cloud unit. In May 2019, I suggested a profitable cloud business could help get BABA shares to $250. They surpassed that level in July 2020, riding the pandemic wave. But since topping out later that year above $300, shares have lost around 70% of their value.
Given the slowdown in Chinese economic growth and continued regulatory uncertainty, it’s best to put BABA on your list of stocks to avoid.
Illumina (ILMN)
Illumina (NASDAQ:ILMN) stock is down nearly 9% year to date compared with an 18% advance for the S&P 500.
Part of the problem is the San Diego-based biotech firm’s fight with Carl Icahn, who himself is in the crosshairs of short-seller Hindenburg Research, which published a report in May suggesting the billionaire would be subject to margin calls if shares of Icahn Enterprises (NASDAQ:IEP) fell further. Icahn restructured his debt and, as a result, was forced to pledge 95% of his IEP stock as collateral on his new financing.
So, how does this relate to Illumina?
Icahn owns 1.4% of the biotech company. In May, he won a proxy fight with the company that saw Chairman John Thompson resign, replaced by Icahn appointee Andrew Teno. In addition, the billionaire wanted CEO Francis deSouzato to step down and be replaced by former Illumina CEO Jay Flatley over DeSouza’s controversial $7.1 billion acquisition of gene-sequencing technology company Grail in 2021.
DeSouza eventually stepped down on June 12. One month later, the European Union fined Illumina $475 million for closing the Grail acquisition without its approval. The Federal Trade Commission has also ordered the company to sell Grail because the deal would stifle innovation in cancer testing technology.
It’s bad enough to be fined nearly half a billion for arrogantly flouting regulators’ wishes. But to be entangled with someone like Icahn, who’s got a history of activism that’s not always a winning hand, leaves me wondering why anyone would bother with ILMN when there are so many other biotechs to choose from.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) got fined $1.3 billion in May for violating European Union data protection rules. Eventually, North America will get wise to the Facebooks of the world and seriously start protecting consumer privacy.
Here in Canada, where I live, Facebook and Google are acting like spoiled children, threatening to ban news from their Canadian news feeds because a new law was passed on June 22. C-18 requires online advertising behemoths such as Facebook and Google to pay media outlets for sharing their content with social media users.
As the Los Angeles Times points out, Australia implemented similar legislation in 2021 and it’s been a boon to publishers down under.
“That bill has already restored tens of millions of dollars in revenue to Australia’s troubled newsrooms, and, while far from perfect, has transformed the media environment dramatically,” wrote columnist Brian Merchant.
Meta and Facebook have been fined more than $6 billion since 2000. That seems like a lot. However, when you consider that Mark Zuckerberg’s wealth in 2023 has increased by nearly $67 billion due in large part to Meta shares’ 158% year-to-date gain, it’s a drop in the bucket.
Zuckerberg will do whatever he wants, including trampling all over publishers’ intellectual property worldwide. His company has no redeeming qualities. It’s the worst of social media.
Investing in META is no better than buying tobacco stocks. The sooner investors realize this, the better.
On the date of publication, Will Ashworth 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.
