As an investor in 2023, the relatively encouraging numbers might lure you into a false sense of security. Underneath the surface are stocks to avoid that have been raising the alarm with red flags for quite some time now.
Consider the companies that have experienced a dramatic drop across both lines, for instance. These flashing warning signs indicate poor financial performance, which could underpin high debt levels, adverse industry trends, or weak macroeconomic conditions.
While tempting, remember the potential for further losses often looms large with these stocks with warning signs. Especially as higher interest rates diminish the overall allure of risk-laden investments. So, even though hunting for bargains is part of the investing game, discarding these three risky stocks from your portfolio would be apt.
Mullen Automotive (MULN)
Electric vehicle (EV) startup Mullen Automotive (NASDAQ:MULN) has witnessed a rollercoaster of a journey. The stock ascended to over $10 in February, propelled by high short interest and a squeeze effect. However, its momentum faltered, with its stock trading for mere pennies on the dollar.
Despite Mullen’s recent capital infusion of $25 million, which it claims to have effectively rectified its debt situation and imposed a moratorium on further share dilution, investor apprehension is palpable. Given that the company has yet to produce a car and the capital-intensiveness of this business, Mullen’s survival makes it a remarkably doubtful prospect. It reported a whopping cash burn of over $960 million last year. Therefore, expect a bumpy road ahead for the brave hearts looking to wager on MULN stock now.
When assessing Coinbase’s (NASDAQ:COIN) outlook, it’s imperative to consider the dynamics of its operations. Its business model and share price hinges on the high-stakes, high-volatility crypto realm. Such an environment cannot be taken lightly, but it’s not inherently unfavorable, provided investors recognize the risks.
The glaring challenge for COIN stock seems to be the ongoing investigation by the Securities and Exchange Commission, which undeniably casts a bearish shadow. However, this is merely the tip of the iceberg, as a separate lawsuit backed by 11 states further threatens Coinbase, demanding the company defend its operations and its right to continue crypto trading. Despite these legal hurdles, it’s worth noting that many investors have seen significant gains over the past year. However, the bubble will likely burst soon, with the stock trading over 8.9 times forward sales estimates, roughly 276% higher than the sector average.
Wolfspeed (NYSE:WOLF) is a popular semiconductor manufacturer which is trudging through muddy waters as of late. The company’s ambitious expansion plans, aimed at boosting production capacity for EV and 5G markets, have inflated operating costs and interest expenses. Adding to the financial strain, the global semiconductor shortage has weighed down the supply chain, pushing costs higher. Topping off this cascade of challenges, legal skirmishes over intellectual property rights and contractual obligations have convoluted its bottom line further.
Moreover, the firm faces a major hiccup as operational issues at its Mohawk Valley facility are hampered by its 200mm substrate capacity. This setback impacted immediate output and led to a downward revision of its fiscal 2024 revenue guidance. Hence, these operational delays cast a long shadow over Wolfspeed’s growth potential, stirring up uncertainty around the company’s future business prospects. Therefore, its best to avoid WOLF stock at this time, as it offers minimal long-term upside ahead for investors.
On the date of publication, Muslim Farooque did not have (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