Overall, it’s certainly great for investors that we’ve entered the phase of the bull market in which nearly everyone is becoming much more upbeat about stocks. After all, it’s obviously much easier to make money now in the market than it was last year and many times easier than was the case in 2022.
At the same time, however, it’s also becoming much easier to get enticed into buying stocks with poor fundamentals that are nevertheless rallying due to investors increased optimism. Of course, those who buy such equities often lose a great deal of money on them in the longer run, since selling names that you once passionately believed in is not always easy to do.
Here are three stocks to avoid in order to prevent yourself from falling into that trap.
GameStop (GME)
GameStop (NYSE:GME) rallied about 18% between Feb. 22 and the afternoon of March 6. However, there’s no evidence that the firm’s fundamental problems are easing.
Specifically, the retailer’s main business of selling hard copies of video games is slowly disappearing since most such games are being downloaded now. And while the company is also generating significant revenue by selling collectibles such as figures and coins, the latter business is commoditized and consequently not very profitable.
Some may be enticed by the board’s decision to allow the firm to buy the stocks of other firms. But given the decisions by CEO Ryan Cohen to invest in Bed, Bath, and Beyond, which subsequently went bankrupt, and his purchase of GME stock itself, I would not expect big returns from the firm’s stock-purchasing programs.
Hasbro (HAS)
As I noted in a Feb. 9 column, “Sinking U.S. fertility rates are likely to undermine the businesses of companies whose products are primarily used by children.” After reporting that from 2007 to 2022, the birth rate tumbled nearly 23%.” I identified toy maker Hasbro (NASDAQ:HAS) as one of the firms that was being undermined by the latter trend.
Hasbro’s fourth-quarter results, reported on Feb. 13, show that its struggles continued late last year. Indeed, its top line tumbled 23% versus the same period a year earlier to $1.29 billion. Moreover, its net loss ballooned to $1.06 billion last quarter from $129 million in Q4 of 2023.
Additionally, since many of today’s millennial parents are probably much more likely to be concerned about the impact of exposing their children to violent toys, chances are high that they are less likely to encourage their children to play with war-oriented toys than preceding generations of parents. The latter trend, in turn, is negative for HAS, which markets G.I. Joe and Star Wars toys.
Finally, toys have generally been getting much cheaper in recent years, probably due to increases in the amount of toys imported from developing countries. The latter trend, of course, is also negative for Hasbro and HAS stock.
Cirrus Logic (CRUS)
Cirrus Logic (NASDAQ:CRUS) has historically obtained almost 80% of its revenue from Apple (NASDAQ:AAPL). The latter tech giant incorporates Cirrus’ “audio chips and IC controllers” into most of its hardware.
And the demand for Apple’s iPhones in China, its second-largest market, has reportedly been sinking. Indeed, iPhone unit sales in the Asian country reportedly tumbled “24% in the first six weeks of 2024 compared to the same period in 2023.”
Also noteworthy is that, although Apple’s revenue from its iPhone sales rose 8% last quarter versus the same period a year earlier, the figure was slightly below the peak reached in the final calendar quarter of 2021.
Of course, a sharp decline of iPhone sales in China would very bad news for Cirrus, which obtains a small amount of revenue for each iPhone handed over to consumers.
Desite these issues, CRUS stock has advanced nearly 20% since early February.