SPECIAL REPORT The Top 7 Stocks for 2024

3 Stocks to Sell This Month Before They Take a Dive

Advertisement

  • These fundamentally broken stocks to sell share traits of excessive cash burn, dilution, and doubtful paths to profitability.
  • Faraday Future Intelligent Electric (FFIE): Massive dilution and no path to profitability with its overpriced flagship.
  • Mullen Automotive (MULN): Diluting its shareholders to a valuation that will approximate zero.
  • FaZe Holdings (FAZE): The clan has “fazed out” of the mainstream gaming trends.
stocks to sell - 3 Stocks to Sell This Month Before They Take a Dive

Source: Shutterstock

Things may be getting rocky in the broader market, but that doesn’t mean every trade has to be a loss. While going long and buying stocks is the conventional wisdom for most investors, shorting stocks can also pay off handsomely – if done carefully.

Now, shorting stocks isn’t for the faint of heart. After all, when you buy a stock, the most you can lose is 100% of your investment if the company goes bankrupt. But with short positions, losses can exceed 100% since there is no cap on how high a stock price can rise. We’ve all seen heavily-shorted stocks squeeze higher unexpectedly thanks to a short-term spike in buying activity.

However, shorting does offer huge profit potential if you identify companies with clearly deteriorating fundamentals. For example, many unprofitable companies took on piles of debt in recent years thanks to easy money policies and now face reckoning as rates rise. Other stocks may simply have business models that no longer resonate in today’s economy.

The key is to tread cautiously, use stop-losses, and avoid using leverage when shorting individual stocks. Done prudently, shorting weak stocks can generate nice profits, even in an upward-trending overall market. Let’s look at a few stocks to sell right now!

Faraday Future Intelligent Electric (FFIE)

Person holding cellphone with logo of electric vehicle company Faraday Future Inc. (FFIE) on screen in front of business webpage. Focus on phone display. Unmodified photo.
Source: T. Schneider / Shutterstock.com

Faraday Future Intelligent Electric (NASDAQ:FFIE) has been one of the most volatile penny stocks in the electric vehicle startup space. Like most early-stage EV companies these days, Faraday Future has been burning through cash at an alarming rate with little revenue to show for it.

However, unlike many of its peers, Faraday Future does not have nearly enough liquidity to cover its losses. As a result, the company has had to rely heavily on dilutive measures just to keep the lights on.

Shares outstanding have ballooned from around 7.8 million at the start of 2023 to over 30 million today. This massive dilution renders any serious investment in this stock pointless, in my view. Even if Faraday Future miraculously becomes the next Tesla (NASDAQ:TSLA) over the next decade, which is highly unlikely, the sheer amount of share dilution will leave early investors with a tiny fraction of ownership.

Of course, short-term price spikes are likely, due to the low market cap that traders can take advantage of. However, this company seems fundamentally unsustainable to me and will eventually trend toward zero in the long-run.

Its flagship EV, the FF91, continues to face delays and seems grossly overpriced. There is nothing particularly special about the FF91 to justify its egregious $300,000+ price tag. The vehicle it is most comparable to, the 2016 Tesla Model S P90D, can be purchased on the used market for around $30,000 – $40,000. Paying 10x the price for the FF91 makes little sense to me. The car’s performance metrics are only marginally better in some areas, hardly justifying the immense price premium. I don’t foresee many consumers opting for the FF91 at these inflated prices, especially from an unproven startup.

In my view, Faraday Future lacks a clear path to profitability. The business is burning through its dwindling cash pile with no meaningful revenue in sight. Massive dilution has already destroyed shareholder value and will continue to do so. Therefore, FFIE stock remains a clear sell, in my opinion.

Mullen Automotive (MULN)

A rear-view shot of a gold Mullen (MULN) Five electric vehicle.
Source: Sam the Leigh / Shutterstock.com

Shifting gears to the commercial EV space, Mullen Automotive (NASDAQ:MULN) finds itself in a similar dilutive predicament as Faraday Future. The company is focused primarily on commercial trucks and vans, with plans for consumer passenger EVs down the road. However, those futuristic models are likely years away and will inevitably face delays.

Like Faraday Future, Mullen has relied on frequent reverse stock splits and capital raises just to keep the lights on. These dilutive measures have crushed MULN stock, which is down over 95% year-to-date. Revenue has been minuscule so far, with just $308,000 generated last quarter.

Meanwhile, the stock will face yet another reverse split at the upcoming December shareholder meeting after already undergoing one earlier this year. These desperate maneuvers reek of a company just barely staying afloat.

In my opinion, Mullen’s proposed vehicles seem significantly overpriced compared to more established competitors in the commercial EV space. The pricing disconnect makes it unlikely Mullen will achieve meaningful market share in the next couple of years at least. Production capabilities also lag far behind rivals.

With rapidly declining cash reserves, no meaningful revenue or production yet, and excessive reliance on dilutive measures, MULN stock appears fundamentally broken. Perhaps short-term traders can capitalize on hype-driven spikes. However, over the long-run, I expect the share price to trend lower, absent a major meme rally.

FaZe Holdings (FAZE)

FaZe (FAZE) Clan esports organization logo displayed on laptop computer screen. FAZE went public via a SPAC.
Source: Piotr Swat / Shutterstock.com

Shifting focus away from electric vehicles, FaZe Holdings (NASDAQ:FAZE) operates at the intersection of gaming, digital media, and influencer culture. FaZe started as a YouTube gaming collective back in 2010. The original members grew wildly popular for their trick-shot videos and humorous gaming content.

However, over a decade later, the FaZe brand has lost much of its relevancy and influence. The content that made them famous years ago now feels dated. Younger generations have flocked to new gaming icons on platforms like Twitch and TikTok.

Still, FaZe generates some revenue through merchandise sales and brand partnerships. But those revenue streams are inadequate to cover the outsized costs. Just like Faraday Future and Mullen Automotive, FaZe Holdings bleeds money each quarter with little sign of profitability on the horizon.

In fact, FaZe burned through nearly $16 million in cash this year. With only around $21 million in cash left, the company has maybe 1-2 years max before either needing to raise additional capital or shut down completely.

Personally, I don’t foresee a dramatic resurgence for FaZe. The business lacks a coherent growth strategy, in my opinion. Partnering with a few brands and selling some t-shirts won’t move the needle meaningfully.

Adding to my skepticism, some of the original FaZe members have publicly voiced displeasure with management’s direction lately. It’s usually not a promising sign when your own founders jump ship.

Penny Stocks

On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.

Read More: Penny Stocks — How to Profit Without Getting Scammed

On the date of publication, Omor Ibne Ehsan 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.

Omor Ibne Ehsan is a writer at InvestorPlace. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks. You can follow him on LinkedIn.


Article printed from InvestorPlace Media, https://investorplace.com/2023/11/3-stocks-to-sell-this-month-before-they-take-a-dive/.

©2024 InvestorPlace Media, LLC