There’s a lot of good news out there. But there’s also a lot of unknowns that keep buffeting that optimism.
The other X-factor in all this is how the market is going to take any of the new information that gets released. Will an expanding economy be a bullish sign and move the market up? Or will Wall Street worry that it means inflation is going to rise faster than expected and it’s time to sell?
It has been a long time since we’ve had markets that actually move on news. Before and during the pandemic, all news was good news. Bad jobs number? Inflation will stay low — buy. Economy falls off a cliff? Buy the dip!
Between buying dips and the years-long FOMO crowd, nothing has stopped the bull run. But this bull is getting tired.
The stocks to avoid below have likely run their race. Oh, and each has an F-rating in my Portfolio Grader.
- AppFolio (NASDAQ:APPF)
- Cardinal Health (NYSE:CAH)
- Citrix Systems (NASDAQ:CTXS)
- Ionis Pharmaceuticals (NASDAQ:IONS)
- PG&E (NYSE:PCG)
- Perrigo (NYSE:PRGO)
- Splunk (NASDAQ:SPLK)
Stocks to Avoid: AppFolio (APPF)
Launched in 2005, APPF went public in 2015. It was very recently a stock to covet rather than a stock to avoid.
Basically, APPF sells cloud-based software solutions to SMBs (small to medium-sized businesses) in the property management and legal industries. It has a popular product and expects to do about $300+ million a year in revenue.
During the giant tech rally during the pandemic, APPF was one of the winners. But now that we’re back to looking at real numbers (as opposed to projected ones) things aren’t so rosy.
Q1 earnings were below expectations and the same is true of expectations for Q2. If it can’t hit its numbers, this market will be unforgiving.
APPF is down 19% year-to-date, yet it’s still trading at current price-to-earnings ratio of 32x. And that’s with negative earnings expected for Q2. There’s still downside here.
Cardinal Health (CAH)
The states recently managed a $26 billion settlement from pharmaceutical distribution companies earlier this month. One of the four companies was CAH. Its share of this settlement is $6.4 billion. Its first payment is in September for $391 million.
Those payments will go on for 18 years.
Hopefully, this alone will give you pause and clears up why CAH is a significant stock to avoid right now.
Beyond this opioid mess — which isn’t over — is also the challenges of running medical facilities during the pandemic and beyond. All this uncertainty isn’t good and paying off a $6.4 billion tab doesn’t put you in a position of strength.
CAH is up 12% year-to-date and delivers a 3.2% dividend that may be slashed at any time to free up some cash.
Stocks to Avoid: Citrix Systems (CTXS)
If you’re a long-time tech leader with clients in over 100 countries, a half million customers and more than 10,000 partners, you wouldn’t think you’d end up on a stocks to avoid list.
But CTXS is on this one.
While most tech stocks have been rising, especially companies in the business of systems integration and workspace unification. But the trouble is, there are a lot of competitors in the space and many people tend to add the productivity tools they need to their current systems rather than finding an integrator.
This business was doing well when companies were expanding operations, but now there isn’t as much momentum on that side. And CTXS isn’t growing like it was.
The stock is down 20% in the past 12 months, where the S&P 500 is up 19%. That’s not good. And CTXS is still trading at a P/E of 30x.
Ionis Pharmaceuticals (IONS)
At the beginning of this year, IONS was doing well. The stock hit a 52-week high and it had a couple deals with big pharmaceutical companies that were bankrolling trials as well as research and development.
But March slowed that roll significantly. IONS and its big pharma partner announced they were pulling the plug on a phase 3 trial for a Huntington’s Disease drug. Also, another of its partners is taking heat for an approved Alzheimer’s drug. And IONS is working with this partner on another Alzheimer’s drug.
The stock still has a $5 billion market cap, so it’s fairly well established. And it has been around for more than three decades, so it has staying power. The problem is, it doesn’t have much going for it right now. IONS stock is down 33% year-to-date. And this is no time to buy low.
Stocks to Avoid: PG&E (PCG)
If you live in California, or know someone who does, ask them what they think about PCG. That may tell you all you need to know.
If not, then here are a couple fast facts. First, this massive electric utility provides power for most of Northern and Central California. You know, where all the wildfires and droughts are. And all that is on top of the active fault the state sits on.
Certainly part of PCG’s bad rap isn’t its fault. When wildfires break out, powerlines fall, transformers blow and it’s hard to get people in to work during these massive events. But as these events happen with more frequency, it’s hard for PCG to keep up, much less get ahead of things.
It’s looking to bury powerlines now, but that’s extremely expensive and there’s no way PCG can pass on those costs to the public. It’s one of the top stocks to avoid on this list.
PCG is down 25% year-to-date and there’s plenty of bad weather ahead.
Perrigo (PRGO)
This drug and healthcare products maker has been around since 1887. That gives it some significant staying power. And its $6 billion market cap certainly makes it a solid player.
But PRGO has some troubles. One is, it moved its headquarters from Michigan to Ireland to lower its corporate taxes. But it recently failed to mention $1.9 billion owed to Irish tax authorities to its investors.
Now, it has a battle over the money in Ireland and another suit lodged in the past few days in the U.S. With its earnings already underwater, any negative news on these fronts could spell even more trouble for PRGO stock.
PRGO is up 8.5% year-to-date but the company is fighting to keep the returns positive for the rest of the year. At this point, PRGO is a poster child of stocks to avoid.
Stocks to Avoid: Splunk (SPLK)
Observability is the new term for what SPLK and similar companies do. Many companies now are running all sorts of IT infrastructure, from private clouds to public clouds to server farms and intranets, as well as work from home solutions.
That’s a lot of systems to manage in real time for potential issues. Observability software allows organizations to have an operational view of all the infrastructure at work simultaneously.
The trouble is, companies haven’t been able to really budget for this kind of systems management yet, so growth will be challenging through this year. SPLK is down 14% year-to-date, while other tech sectors are scoring big gains. And given where the markets are now, you don’t want to catch this falling knife yet.
On the date of publication, Louis Navellier has no positions in the stocks in this article. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (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.
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