The right stocks can make you rich and change your life.
The wrong stocks, though… They can do a whole lot more than just “underperform.” If only! They can eviscerate your wealth, bleeding out your hard-won profits.
They’re pure portfolio poison.
Surprisingly, not many investors want to talk about this. You certainly don’t hear about the danger in the mainstream media – until it’s too late.
That’s not to suggest they’re obscure companies – some of the “toxic stocks” I’m going to name for you are in fact regularly in the headlines for other reasons, often in glowing terms.
I’m going to run down the list and give you the chance to learn the names of three companies I think everyone should own instead.
But first, if you own any or all of these “toxic stocks,” sell them today…
Ambow Education (AMBO)
Ambow Education has been lighting up the charts with a jaw-dropping 82% gain this year alone. On paper, Ambow, with its focus on educational software and hardware for blended learning, seems like it’s on the brink of revolutionizing education.
But let’s pump the brakes for a second. The whole online and offline learning fusion? It’s a great idea, especially considering our recent forced experiment with distance learning during the Covid-19 pandemic. Yet, if we’re being honest, that experiment revealed some serious cracks, particularly for teachers struggling to adapt.
Ambow boasts a track record of success in China, but let’s remember, the U.S. is a whole different ball game. The educational technology (edtech) sector here has seen its fair share of ups and downs. And when you dive into the technicals, AMBO’s point-and-figure (P&F) chart flashes a high pole warning – not exactly the sign of stability.
So, despite the recent hype, I’m leaning towards caution with AMBO. It might be time to consider whether this high-flier deserves a spot in your portfolio or if it’s one of those stocks to sell before the hype fades.
Verizon (VZ)
Verizon has been a staple in many long-term portfolios primarily due to its juicy 6.50% dividend yield. But here’s the thing: a 29% drop over the last five years tells a story that’s hard to ignore. Sure, the stock has been flat over the past year, but that’s only after a surprising 29% rally since October.
Digging into the numbers, Verizon’s financial health raises some red flags. With a staggering $128.5 billion in unsecured debt and a slight dip in year-over-year operating revenue, it’s clear the telecom behemoth is under some pressure. The quick ratio sitting at 0.64 doesn’t exactly inspire confidence, signaling more current liabilities than assets.
The reality is, Verizon seems to be on the defensive, struggling to hold onto its market share in a fiercely competitive landscape. The days of robust financial growth appear to be behind it, reflected in its significant five-year decline. And while the dividend might look attractive on the surface, the growth of that dividend is barely inching forward, with a mere 1.25 cents annual increase in its quarterly dividend per share.
After the unexpected rally to end 2023, Verizon’s stock might just be teetering on the edge of a correction. For those looking at the long game, it might be time to reassess Verizon’s place in your portfolio.
Baidu (BIDU)
Lastly, we have Baidu, the behemoth behind China’s top search engine. Despite its dominant online presence, Baidu’s stock has taken a hit, sliding down 23% over the year and 7% year to date, now hovering around $107 from its 2021 peak of $339.
The cooling of China’s market has hit Baidu hard, particularly its bread-and-butter online marketing revenue. Despite hefty investments in AI, its cloud business hasn’t made significant strides and remains a minor player in the market.
Here’s the kicker: Baidu is bleeding money and hasn’t turned a profit. The stock’s been stuck fluctuating between $100 and $146 for the last six months, and there’s little to suggest a turnaround is near. Growth is sluggish, and Baidu’s ambitious AI projects might be too little, too late.
The company’s struggle to showcase its AI capabilities to businesses over the past two years is concerning. Moreover, the U.S. ban on chip exports to China throws another wrench in the works. Without these crucial components, Baidu’s ability to run AI models or applications is severely hampered, potentially stalling its growth indefinitely.
Given these challenges, it might be wise to consider selling BIDU before it potentially falls below the $100 mark. Waiting for a turnaround could be a long haul, and there are likely better opportunities elsewhere.
