The following is an excerpt from 7 Stocks to Sell Before the Crash – And Tesla is #1!
It’s been years since we’ve had a proper stock market crash. And while that doesn’t necessarily mean that you should be looking for stocks to sell because a crash is imminent, now’s not a bad time to think about which companies face the biggest risks.
In a bear market, the weakest companies with the flimsiest business models the ones to get hit the hardest. This is particularly true of corporations that need regular cash infusions from secondary stock offerings.
A falling stock price raises the cost of capital, and becomes something of a vicious cycle. Stock declines force greater shareholder dilution as the company issues more shares to bring in a fixed amount of capital. Then the stock heads even lower, and… well… you get the point.
Today, we’re going to take a look at seven stocks to sell, that I see as particularly at risk to a bear-market mauling. You don’t necessarily have to scramble to dump them immediately, of course; some might even be decent short-term trades.
Just don’t get attached. Once the market eventually rolls over, these companies will likely be some of the hardest hit. And you don’t want to be left holding that bag.
Tesla Motors (TSLA)
I really hate including Tesla Motors (TSLA) on this list because I admire founder Elon Musk and I really like his product. The world will be a better and greener place for Mr. Musk’s efforts.
But I wouldn’t touch the stock with a 10-foot pole.
Tesla Inc operates in a hypercompetitive industry, and has no enduring competitive advantage in producing electric cars. Virtually every major automaker either already has or is developing a high-end electric car to compete with TSLA stock. Earlier this year, for instance, Volvo announced that in 2019 all of its new cars will be either electric or hybrid. This follows an announcement by Porsche to do the same inside of 10 years. And even mass-market Volkswagen AG (VLKAY) plans to make at least 25% of its cars hybrid or electric.
These are established players that have been around for decades. Tesla is still an upstart that has yet to turn a profit Despite growing its revenues at an impressive clip, Tesla has never come close to earning a profit. And there is no light at the end of the tunnel here; profit projections are murky at best.
Investors will continue to feed Tesla capital… right until they don’t. You don’t want to own Tesla stock when that day comes.
To read the rest of this article, please see 7 Stocks to Sell Before the Crash – And Tesla is #1!
Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.
Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.
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