As the stock market navigates through 2024, certain stocks are showing signs that they might not be the best holdings for your portfolio. Here are three “ticking time bombs” that investors might consider as stocks to sell, to preserve capital and improve one’s overall risk-adjusted returns.
Some stocks on this list have high valuations that do not align well with their fundamental performance. For instance, companies with declining growth rates, increasing competition, or poor financial health can be risky bets that should be weighed on the chopping block as potential stocks to sell.
Meanwhile, certain industries are facing long-term structural declines, making stocks in these sectors risky. For example, companies in the traditional retail space, which are struggling to compete with e-commerce giants, might be stocks to sell before their value declines further.
Whatever one’s bear thesis is, it’s important to take action on these stocks to sell quickly. Periodic reviews of one’s investments is crucial, and the three companies on this list may be valid candidates to drop from one’s portfolio.
Peloton Interactive (PTON)
Peloton Interactive (NASDAQ:PTON) has struggled with declining demand, leading to excess inventory and significant financial losses.
Peloton’s business model relies heavily on hardware sales to drive subscription growth, but demand for its connected fitness products has slowed significantly post-pandemic. Q3 revenues from Connected Fitness Products decreased 14% year-over-year to $279.9 million, as consumers returned to gyms and in-person fitness classes. This slowdown makes it harder for Peloton to grow its subscriber base.
The company ended Q3 with 3.06 million Connected Fitness Subscriptions, essentially flat year-over-year. Paid Digital Subscriptions also declined 21% to 674,000. Peloton lowered its full-year outlook for both metrics, indicating softer demand and higher churn than anticipated. Subscription revenue growth has stagnated around 3%.
Another major concern is Peloton’s liquidity and cash burn. The company has nearly $2.3 billion in debt and ended Q3 with $794.5 million in unrestricted cash. While Peloton has stemmed cash outflows, its financial position remains precarious, especially with convertible notes and a term loan maturing in the coming years. This makes it one of those stocks to sell.
Sundial Growers (SNDL)
Sundial Growers (NASDAQ:SNDL) has struggled with profitability and market competition in the cannabis sector.
With over $780 million in cash and marketable securities, SNDL has a strong balance sheet. But the company continues to burn cash, reporting a free cash outflow of $6.4 million in Q1 despite the improvement year-over-year. If SNDL’s retail profits deteriorate or growth initiatives don’t pay off, the company may need to raise additional capital on less favorable terms.
Investors should also consider that SNDL has a history of dilutive capital raises and its share structure has gotten extremely complex with multiple reverse splits. The stock is trading well below $2 with a market capitalization under $500 million, adding risk and volatility.
Furthermore, revenue declined sequentially from Q4 2023 due to seasonality in the company’s Liquor and Cannabis Retail segments. If consumer spending weakens further or competition intensifies, SNDL’s retail businesses could come under pressure. This then positions SNDL as one of those stocks to sell for risk-averse investors.
Nikola Corporation (NKLA)
Nikola Corporation (NASDAQ:NKLA) has faced multiple controversies and setbacks and is still in the very early stages of ramping up production and sales of its hydrogen fuel cell and battery electric trucks. While Q1 2024 saw progress with 40 FCEV truck deliveries and its first remediated BEV delivery, the company’s ability to scale manufacturing efficiently and achieve consistent, profitable sales volume remains uncertain.
The company has a substantial cash burn rate, with a negative operating cash flow of $431.8 million and a negative free cash flow of $516.5 million over the past 12 months. Nikola had $378 million in cash as of Q1 2024, but also $280 million in debt. At the current burn rate, the company may need to raise additional capital in the not-too-distant future, potentially leading to shareholder dilution.
Nikola’s stock price has been extremely volatile and is down nearly 80% over the past 52 weeks. With a market cap under $500 million, the stock is firmly in small-cap territory and prone to significant swings based on news flow and shifts in sentiment. It could then prove too risky for some investors to stomach, and given its recent results, it could be one of those stocks to sell for more prudent investors.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.