With market uncertainty being the name of the game, investors may want to red flag the most volatile stocks to avoid. Usually, securities that show greater-than-average mobility – whether to the downside or up – are speculative, growth-oriented ventures. That might work well during a decisively bullish market cycle. However, when faced with uncertainty, such extreme mobility may become a liability.
To be fair, a high beta isn’t the end-all, be-all for evaluating a publicly traded company. Indeed, many critics point out that beta by itself doesn’t provide other critical information, such as the wider fundamental context. Therefore, Investopedia warns that the beta indicator for identifying the most volatile stocks are probably best left to short-term evaluations.
Nevertheless, a beta greater than 1 – which suggests higher volatility relative to the S&P 500 index – in combination with other factors could tip you off on certain ideas to steer clear of. On that note, below are some of the most volatile stocks to avoid in the fourth quarter.
Hut 8 Mining (HUT)
As a blockchain mining specialist, Hut 8 Mining (NASDAQ:HUT) makes for a relatively easy case for most volatile stocks to avoid. Yes, the underlying cryptocurrency sector is one of the most exciting arenas available. And you can make the case that the blockchain technology behind it all may forever change finance. Nevertheless, for the time being, the space is incredibly wild and unpredictable.
Unfortunately, such volatility casts aspersions on Hut 8’s core business. Just look at the annual income statement. In 2020, Hut 8 posted a relatively modest revenue haul of $31.78 million. In the following year, this figure soared to almost $136 million. However, the Federal Reserve’s hawkish monetary policy pushed cryptos lower, leading to sales of $110.9 million in 2022.
On a trailing-12-month (TTM) basis, Hut 8 is looking at a top line of only $68.15 million. You get the idea. Wherever cryptos go, so too does Hut 8.
At the moment, HUT has a 60-month beta of 4.5. In this case, I believe the beta says more than its moderate buy assessment.
Sonida Senior Living (SNDA)
On paper, Sonida Senior Living (NYSE:SNDA) really should rank among the top enterprises to buy, not the most volatile stocks to avoid. Sadly, though, Sonida just isn’t getting it done in the financial performance department. And that has many investors worried about its forward viability. Hence, it’s not particularly surprising to see SNDA incur a 60-month beta of 1.66.
Since the beginning of this year, SNDA lost nearly 34% of equity value. In the past 365 days, it’s down 46%. And just to confirm that we’re not cherry picking data points, in the trailing five years, shares fell more than 93%. That’s just a staggering loss. What makes the red ink more glaring is that Sonida should benefit from a massive total addressable market.
Basically, with the baby boomer generation retiring en masse, Sonida theoretically enjoys demand potential. However, looking at its financials, it’s unprofitable and incurs serious balance sheet liabilities. Only Barclays analyst Steven Valiquette covers SNDA and it’s a moderate sell. Further, the $5 target implies roughly 43% downside risk.
Xerox (XRX)
Specializing in print and digital document products and services, Xerox (NASDAQ:XRX) is a powerhouse name in corporate offices across more than 160 countries. It also goes without saying that the company has its stake in American history. However, the rise of digitalization, while it hasn’t made its professional printers obsolete presents addressable market risks. Since the January opener, XRX lost a bit more than 4% of equity value.
Over the trailing one-year period, it’s down a bit less than 4%. However, in the past 60 months, XRX sadly gave up 46% of value. As a result, during the same time period, Xerox printed a beta of 1.64. Circumstances might not really improve even when you factor in possible contrarian appeal. Yes, XRX trades for only 7.55x forward earnings. Still, Gurufocus warns readers that it’s a possible value trap.
In part, that assessment includes a lackluster long-term revenue growth rate. Also, its other core metrics such as EBITDA in the past three years sit in negative territory. Finally, analysts rate XRX a moderate sell with a $13.50 price target, implying almost 7% downside risk. Thus, it’s one of the most volatile stocks to avoid.
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.
