5 Bearish Stocks to Avoid in the Current Climate
In times of stock market volatility, investors tend to undervalue the good news and overstate the bad news. As a result, stocks that are already going through tough times tend to get hammered even harder. Such is the case for several big names in the market today. And while eager investors might look at suffering stocks as a chance to capitalize on a value play, it’s worth remembering that bad news tends to compound.
While you might find yourself tempted to find the silver lining or play devil’s advocate in favor of some recently battered stocks, find patience and wait for a bottom to develop. Hard-hit stocks won’t truly yield profit until they’ve proven their stability first.
Here’s a look at five bearish stocks that are sparking conversation for all the wrong reasons, primed to continue struggling in the current climate.
1. Meta Platforms Inc. (NASDAQ: FB)
2022 hasn’t been good to Meta. Never in the history of the stock market has a company taken a haircut equivalent to the total GBP of an entire country. Yet, that’s exactly what happened to Meta in early February, when the stock plummeted 26% after reporting its first-ever drop in daily active users. Since then, the company has continued to languish on reports that it has no real way of combatting data privacy crackdowns from other mega companies like Apple and Google.
The drop in daily active users isn’t the only reason investors are bearish on this stock. Thus far, the company’s rebrand to “Meta” from “Facebook” has fallen flat with consumers, and analysts aren’t too keen on the company’s increasing fascination with the so-called Metaverse. To make matters worse, TikTok has emerged as a significant threat as users move away from Facebook and Instagram. While its balance sheet is incredibly strong, forward-looking investors fear Meta’s trajectory, making it a bearish stock.
Key takeaway: Data privacy crackdowns don’t bode well for Facebook or the Metaverse.
2. Zoom Video Communications Inc. (NASDAQ: ZM)
In the early days of the COVID-19 pandemic, Zoom was a breakout stock. Now, two years into the remote work future, excitement about Zoom has cooled. The stock 67% over the course of the last 12 months and continues to hover around 52-week lows. But before you consider that a buying opportunity, ask yourself: what is Zoom’s competitive advantage? It’s the same question investors are beginning to ask as Zoom loses users to competitors like Microsoft Teams, Webex and even Google Meet.
Zoom is the latest tech breakout to suffer from deceleration. After gobbling up market share, the stock’s growth has stagnated and it’s scrambling to find ways to increase revenues. While the company has a plan to focus on its enterprise customers, there’s a protracted period of pivoting ahead. The company has forecasted negative EPS for the year ahead, making this a bearish stock for the immediate future.
Key takeaway: The pandemic allure is wearing off and Zoom needs a new strategy to grow.
3. Shopify Inc. (NYSE: SHOP)
Shopify is something of a wildcard on this list. While all signs point to bearish behavior in the coming months of 2022, the company could hold a golden ticket that surprises investors. The stock has been on the downtrend since the beginning of the year and is set to go lower as online shopping slows post-pandemic. Down 50% on the year already, it’s not a strong sentiment for the year-ahead outlook. To make matters worse, a forward P/E of 128.79 makes this stock look extremely bloated.
The golden ticket that could save Shopify? Right now, the company is funneling investments into a warehousing and delivery network. As this homemade supply chain starts to come online in 2022, it could attract significant commerce to the platform and drive major profitability at every phase of the ecommerce cycle. That said, it’ll take a big push to see the fruits of these labors anytime this year.
Key takeaway: A transitionary period isn’t the best time to take a bet on an overvalued stock.
4. Wix.Com Ltd. (NASDAQ: WIX)
To put it plainly, Wix is a mess. During the pandemic, the company stood poised to welcome a whole new flood of users onto its platform. And while that bump did manifest in a growing user base, Wix saw almost no profit from it. Instead, the company has tumbled more than 75% from its 52-week highs and now trades sideways as it scrambles to find a way forward.
Speaking of a way forward, the going will be tough for Wix. Not only is the company struggling to capitalize, it has a bloated debt to equity ratio of 6.3. While the stock might look attractive at its current price, nothing about the company’s balance sheet or its recent actions does anything to justify its high beta.
Key takeaway: Be wary of investing in a high-margin business that can’t seem to turn a profit.
5. WW International Inc. (NASDAQ: WW)
Five years ago, Weight Watchers was the darling of numerous portfolios. The company brought on Oprah as its spokeswoman and revamped its diet program in a major way, to the applause of shareholders. Now, in 2022, the company sitting close to multi-year lows. How did it get here? A series of poor earnings calls, falling subscriber rates and the rise of competitors have sent Weight Watchers stock tumbling. It’ll remain a bearish stock until the company finds a way to reinvigorate its audience again.
The good news is that the company’s balance sheet is healthy aside from slumping sales. It has virtually no debt, a strong profit margin and an attractive P/E. unfortunately, until the company translates this into profitability, it’ll continue to languish.
Key takeaway: Weight Watchers needs to reinvigorate its user base to capitalize on cash flow.
Beware of Bearish Stocks
Each of the above five companies has taken a beating recently, and there’s no real sign that they’ll overcome that battering in the near future. While you might find yourself tempted to take a flier on name or reputation, look again at the technical and fundamental signals. While there’s a chance these stocks may recover in the near-term, there are problems beyond the immediate that they need to overcome for a true reversal.