Trick or treat? It’s a pretty innocent question that greets many people every Halloweem. Most people asking that question can rest assured that they will receive candy. For stock investors, it isn’t that simple. Unfortunately, there are some spooky stocks looking to haunt your portfolio.
Some stocks look very promising only to crash and burn within a few weeks, months, or years. Sometimes, the losses happen quickly and rapidly. At other times, the losses happen gradually, making them easier to overlook in the beginning.
There are many spooky stocks in the fourth quarter that don’t have the best financials or long-term growth opportunities. Valuations can also dampen stocks that otherwise look good. It’s up to each investor to navigate the twists and turns, but you may want to heed away from these scary stocks.
Disney (DIS)
It’s hard to say anything good about Disney (NYSE:DIS) stock. Shares are down by 7% year-to-date and are down by more than 25% over the past five years. The company’s venture into streaming has bloated the company’s expenses and turned into a multi-billion dollar money pit.
Disney shares recently hit a nine-year low and can end up with a lost decade if shares stay flat for another year or if Disney falls below $70/share. Sentiment matters for many investors, and hitting a nine-year low with growing business struggles doesn’t embody confidence.
Disney’s revenue has been decelerating and only went up by 4% year-over-year in the third fiscal quarter. Disney’s theme parks are one of the few segments with revenue growth, but inflation and student loan payments can present challenges in this industry. It’s an expensive proposition, even for Disney’s biggest fans.
Disney has also reported declining subscriber numbers across most of its unprofitable streaming platforms. Disney+ lost 1% of its North American subscribers from April 1st to July 1st. ESPN+ reported a slight loss in subscribers during the same timeframe, while Hulu experienced a slight increase during the same time.
Disney’s subscription platforms seem to be in trouble from a growth standpoint. If the company cannot grow its streaming platforms, revenue is limited and losses can become a common theme.
Disney announced significant price hikes for its streaming services which can result in churn. Decisions like these can hurt the company’s profitability and long-term prospects for investors.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) has proven the bears wrong for many years. Although shares have gained over 1,000% over the past five years, it’s easy to forget that Tesla shares dropped by more than 60% in 2022. A 130% year-to-date surge has recouped many of those losses.
Investors may remember that big drop when the calendar year turns, especially with the company hinting at lower demand for its vehicles. Tesla cut the prices for its Model 3 and Model Y vehicles, a decision that will reduce profit margins.
It’s no secret why price cuts happen. There’s less demand for these models, and lower prices can re-stimulate demand. Vehicle deliveries were up year-over-year but decelerated in the third quarter.
Tesla currently has a forward P/E ratio of 58. It’s a high valuation that depends on the strong growth narrative remaining intact. Cracks to the narrative are appearing, and they can lead to a significant price reduction.
Target (TGT)
Target (NYSE:TGT) has been a tough ride for long-term investors. Shares are down by more than 30% year-to-date and have only gained 23% throughout the past five years. Target reported a 4.9% year-over-year revenue decline in the second quarter.
Target’s revenue deceleration has been going on for a few quarters and finally reached negative year-over-year territory. There are many factors contributing to Target’s downfall that don’t seem to have quick solutions.
It’s hard to ignore the impact of organized crime contributing to store closures. The company cited rising theft and retail crime as significant factors that contributed to recent store closures. Rising retail theft has been a major theme throughout the year with the trend also making headlines in May.
Retail theft is one factor, but crime data indicates there’s more to the store closures and Target’s financial stumbles. While retail theft is present and growing, it isn’t the top worry driving Target’s store closures and losses.
The true problems are structural rather than something an increased police presence can quickly solve. Even if retail crime was nonexistent, Target would still face the challenges of high-interest rates, inflation, and student loans eating away at people’s purchasing power.
Target is filled with discretionary items that most people don’t need. The company sells a fair share of essentials, but its catalog of impulse-driven items has created many risks. People are watching their spending more carefully, and discretionary items are among the first to go.
Target has the same story as Etsy (NASDAQ:ETSY). The pandemic resulted in revenue surges that rewarded investors at the time. However, neither company could hold onto their pandemic gains and saw their business models come to screeching halts.
It would be easier for Target to recover if rising retail crime was the main issue driving the company’s losses. Then, the argument would be that a stronger police presence or investments in security are all it would take for the company to recover and post strong earnings again.
Etsy doesn’t suffer from rising crime because of its digital presence, but its stock price has dived in the same way as Target. Investors should avoid this spooky stock.
On the date of publication, Marc Guberti 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.
