How do you position yourself into the end of the year in order to maximize the potential for gains and while minimizing exposure to the least-promising stocks? With the markets taking wild swings on an almost daily basis for the past month, this question becomes more important than ever.
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The answer to the first part is relatively simple, albeit not easy: the best stocks are usually the ones that are positioned to grow in good times and bad. But it can be harder to determine stocks that are best to ignore (if you don't own them) or to sell (if you do own them). It could be even harder to pull the trigger.
So today, I want to concentrate on some unattractive companies that seem to combine at least a couple of these characteristics. Earlier this week, I told you about five stocks to avoid. Today I'll provide five more.
The Elephant In The Room
One such company is almost too obvious to mention. An former icon of American manufacturing and business acumen, General Electric (NYSE: GE) exemplifies how a combination of these issues can hurt both a business and its investors.
Of course, the troubles at GE -- the poster child for mismanaged companies -- have been apparent for a while. In 2017, while the overall market was still in rally mode, GE's stock price continued to suffer. That year, GE dropped 45%. This selloff had not created a bargain: GE was a horrible stock to be in during the October-November stock market rout. From the end of the September quarter until November 23, shares plummeted 33% (compared with the market's 9.4%). So far in 2018, GE has lost 55% of its value.
And investors couldn't rely on its dividend, either. About a year ago, GE announced it was cutting its dividend in half. Near-term, further dividend reduction is quite likely.
And GE is not unique in being a company in decline. Such "special situation" companies usually are either mismanaged, carry too much debt, or both. Generally speaking, the risks of investing in a special situation like this greatly overweigh the potential benefits. These are the companies to avoid, especially in a wobbly market.
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GE is an obvious example. Here are some others...
4 More Stocks To Avoid
Avon Products (NYSE: AVP), a direct-selling cosmetics company, hasn't fared well in the internet era. This company is working on turning things around -- its cash flow is positive and it's profitable. But Avon is saddled with too much debt, and $410 million of its debt comes due in 2020. I want AVP to succeed, but I wouldn't recommend taking a position betting on a turnaround just yet.
Similarly, a relatively high debt load, negative revenue and profit growth, and a negative cash flow are the reasons to not like offshore drilling contractor Diamond Offshore (NYSE: DO). This company typically has an older fleet than its competition, too.
I would also stay away from Frontier Communications (NYSE: FTR). Even though this rural telco had to discontinue its generous dividend, the worst is not behind it. The company has way too much debt, especially considering that its business is in decline.
I also have questions about Anheuser-Bush InBev (NYSE: BUD), the world's biggest beer maker. While the company might seem like a safe choice in this market considering its consumer-staple designation, the stock has actually declined 30% year-to-date. I'm afraid there could be more downside, due both to a dividend reduction (recently, BUD announced that it was cutting its dividend payout in half), and to its high debt load (which the company took on when it bought competitor SABMiller for more than $100 billion back in 2016). I suspect BUD can get cheaper yet.
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