The Federal Reserve has signaled that it will keep interest rates higher for a longer period of time than expected. Therefore, traders and analysts will have more time to scrutinize the financials of companies, making speculative stock plays less tenable. Speculative stocks are those that have seen a price increase due to trader speculation as opposed to good business fundamentals. These stocks are often overvalued, unprofitable or face significant risks that could derail their growth prospects. Below are three speculative stocks to sell before damage is done to your investing portfolio.
Nikola (NKLA)
Nikola (NASDAQ:NKLA) is producer of hydrogen- and battery-powered semi-trucks. Since it went public in 2020, the EV maker has been plagued with scandals, lawsuits and regulatory investigations. In 2018, Nikola posted a promotional video for its Nikola One semi-truck prototype driving on a two-lane highway. After a damning report from Hindenburg Research, Nikola management later admitted that the video was staged and the truck was not moving of its own accord.
Since then, Nikola has had a mixed bag of earnings results. Despite the recent escalation in truck sales, the EV maker’s balance sheet has seen dwindling cash since its IPO. Earlier this year, the company was forced to raise its capital again due to a deteriorating cash position. Unfortunately, due to unpredictable sales growth, this may not be enough.
Nikola’s share value has moved all over the place this year. The speculative nature of the stock’s trading is not worth the time of patient, long-term capital holders.
VinFast (VFS)
VinFast (NASDAQ:VFS) is a Vietnamese carmaker that recently catapulted from relative obscurity. Its jaw-dropping Nasdaq debut saw shares eclipse the value of legacy automakers, including Ford (NYSE:F) and General Motors (NYSE:GM). Since its debut, market-watchers had their doubts about the sustainability of VinFast’s rally given that the company had yet to generate significant sales in the U.S. market. Shares eventually plummeted from their $82.35 high to $8.33 a share today.
The automaker’s Q2 earnings report only aggravated investor concerns. Despite total sales being up 131.2% Y/Y, driven by VinFast’s domestic market, sales in the U.S. significantly lagged. Given the market speculation after VinFast’s IPO, more volatility to the automaker’s shares could resurface. However, investors would do well to not fall for the hype or they may get burned in the process.
Peloton (PTON)
The final entry is Peloton (NASDAQ:PTON), a fitness equipment retailer famous for its Peloton bike and online classes. Peloton had been touted as a pandemic winner, as people turned to its products and services to stay fit at home. However, Peloton’s growth has slowed down significantly as pandemic restrictions eased and people resumed their normal activities. The fitness company’s stock price has plunged far from its pandemic-era peak of $167.40 and trades around $5.15.
This month, Peloton announced a 5-year agreement with Lululemon (NASDAQ:LULU), in which Lululemon will become Peloton’s primary apparel provider and Peloton will provide exclusive digital content to the company. While this deal could surely raise Peloton’s brand awareness, whether the company will enter a new phase of record growth remains up in the air. Investors would probably be better off not sticking around and finding out.
On the date of publication, Tyrik Torres 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.
