The stock market appears to be entering choppy waters as the year winds down. Between high inflation, unpredictable interest rates and an increasingly frightful geopolitical landscape, risk factors abound.
So here are three stocks to avoid. Given this challenging investment environment, this is not time to be holding onto struggling companies that have seen better days. It’s time to cut these three dead in the water companies loose today.
AMC Entertainment (AMC)
Many traders love a good underdog story. But there’s not going to be a happy ending to the AMC Entertainment (NYSE:AMC). In fact, it’s well past time to sell AMC stock and move on.
For several years now, there has been the hope that a revival was just around the corner for AMC. Traders expected that the economic reopening would lift its fortunes. Or that AMC’s other investments, such as in Hycroft Mining (NASDAQ:HYMC), could move the needle. Or perhaps CEO Adam Aron’s financial engineering could make the best of a challenged balance sheet.
But it simply hasn’t worked out.
AMC’s balance sheet has gone from bad to worse amid heavy operating losses. This has led to various credit rating downgrades over the past year. To keep the company from running out of money, AMC has engaged in heavy share dilution, such as the recent APE share conversion which flooded the market with new shares and led to a crushing collapse in the value of AMC stock.
Simply put, AMC was barely profitable even prior to the pandemic. Now stuck with lower movie attendance and a much higher debt load, it’s hard to see how AMC can return to reasonable levels of profitability anytime soon. AMC stock is in a fight for survival right now. Investors should avoid AMC stock, as the share price is likely to head sharply lower given the ongoing losses and creaky balance sheet.
Moderna (MRNA)
Moderna (NASDAQ:MRNA) had a different experience over the past few years. As you may recall, Moderna was one of the first to get to market with a COVID-19 vaccine, which led to enthusiastic trading in MRNA stock on that news.
Unfortunately, Moderna was not able to turn its overnight vaccine success into a more durable or steady business. Analysts project that the company’s revenues will crash from $19 billion in 2022 to less than $7 billion for full-year 2023. Unsurprisingly, the company’s profitability has dried up with analysts projecting a large earnings per share loss over the next 12 months.
Perhaps the company saved some money for a rainy day? Moderna did strengthen its balance sheet from its COVID-19 profits. However, the company’s book value of $44 per share still falls far short of its current share price, suggesting that there is plenty more downside ahead of MRNA stock in coming months.
Long story short, Moderna needs another vaccine product to become a blockbuster. Without a second act, Moderna’s stock price is set for further declines.
United Airlines (UAL)
The airline industry is known for being a difficult one. Warren Buffett, for example, famously joked that investors would have been better off if airplanes had never been invented. However, even Buffett ultimately fell for the airline industry’s allure and lost money investing in the sector in the late 2010s.
As it relates to 2023, there had been a compelling story for airlines once again. The global economy had reopened. Consumers were flush with cash and traveling at record rates. We’ve even seen some signs of a resurgence in the business travel market. And, amid capacity shortages in the sector, airlines were enjoying a rare bit of pricing power leading to higher profit margins.
However, the sector’s turbulence has returned. Mounting geopolitical tensions are sending the cost of jet fuel soaring while making certain overseas destinations potential no-go zones for the time being. Labor costs are becoming a major concern with unions extracting heavy concessions from the airlines. And the industry is still working to reshape itself in the wake of a culture that has been fundamentally disrupted by remote work.
United Airlines (NYSE:UAL) exemplifies this point. UAL stock sank to new lows this week following a grim earnings report. The company slashed its forward guidance, and CEO Scott Kirby warned of potential chaos in the industry if it can’t get operating costs under control in a hurry. Make no mistake, the travel recovery trade is over, and it’s time to sell United and other airlines as the next recession appears to be taking form just over the horizon.
On the date of publication, Ian Bezek held no position in any of the aforementioned securities. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
