As you approach retirement, it’s crucial to carefully consider your investment portfolio and make strategic decisions to safeguard your financial future. While some stocks may seem attractive, certain investments can pose significant risks to your retirement savings.
In this article, we will explore seven stocks that retirees and those nearing retirement should avoid. These stocks are characterized by factors such as high volatility, unsustainable business models, or unfavorable market conditions that could jeopardize your hard-earned nest egg.
Dividend stocks, often sought after by retirees for their potential to generate passive income, will be a central point of discussion. However, not all dividend stocks are created equal. Some companies may offer enticing yields but lack the fundamental strength to sustain those payouts over the long term.
So here are seven stocks for the soon-to-be-retired to consider dropping their portfolios as we enter into June.
Retirement Stocks to Avoid: Exxon Mobil (XOM)
Exxon Mobil (NYSE:XOM) faces significant challenges due to the shift towards renewable energy, volatile oil prices, and regulatory concerns.
Investors might be clinging to outdated market conditions, believing that XOM’s past performance will continue. However, the company faces substantial challenges today from a renewables point of view.
Despite these efforts, ExxonMobil CEO Darren Woods has acknowledged the difficulties in replacing the current energy system due to its vast scale and utility. Woods emphasized that a swift transition to renewable energy is unrealistic without maintaining investments in oil and gas to ensure energy security and affordability.
In the short term, five Wall Street analysts forecast a 17.49% drop in EPS for FY2027, indicating substantial revenue declines. This reflects broader risks within the energy sector and points to deeper structural issues.
XOM is then no longer a set and forget stock that it once was, and requires careful monitoring moving forward.
CVS Health (CVS)
CVS Health (NYSE:CVS) is facing rampant theft and declining profit margins. Despite efforts to mitigate theft, these issues have led to store closures and financial instability.
In the first quarter of 2024, CVS reported total revenues of $88.4 billion, a 3.7% increase from the previous year. However, the company’s GAAP diluted EPS fell to 88 cents from $1.65 in Q1 2023, and adjusted EPS dropped to $1.31 from $2.20.
Moreover, CVS had to revise its full-year 2024 guidance, lowering its GAAP diluted EPS to at least $5.64 from $7.06 and adjusted EPS to at least $7 from $8.30.
In addition to combating theft, CVS Health is implementing cost-cutting measures to stabilize its finances. The company aims to cut $800 million in expenses in 2024, including the elimination of 5,000 jobs.
CVS, like XOM, is a shadow of its former self, and retirees should avoid it.
Retirement Stocks to Avoid: Pfizer (PFE)
Pfizer (NYSE:PFE) has seen its stock decline by 25.83% over the past year, primarily due to reduced pandemic-related revenues and investors’ concerns about replacing those revenues and upcoming patent cliffs.
Also, Pfizer’s revenue from COVID-19 products like vaccines and Paxlovid has drastically decreased, contributing to a $9 billion cut in revenue estimates. This decline follows the earlier pandemic boom that saw the company’s stock peak at $59 in December 2021.
Pfizer’s debt has increased significantly, partly due to its acquisition of Seagen. Pfizer financed this $43 billion acquisition substantially through $31 billion in new long-term debt, with the balance coming from short-term financing and existing cash. It’s therefore considerably leveraged and a much more riskier option than it was before, although the acquisition does hold some accretive value for investors.
Retirement is not the time when investors should consider buying up shares of highly leveraged firms, and PFE ticks this box due to its Seagen acquisition.
AT&T (T)
AT&T (NYSE:T) has struggled with a high debt load and competitive pressures in the telecommunications sector. The company’s significant investments in 5G and media acquisitions have yet to yield the expected returns, and its high dividend payout ratio raises concerns.
For 2024, AT&T plans to continue focusing on expanding its 5G network and fiber broadband services. The company anticipates capital expenditures in the range of $24 billion, prioritizing 5G and fiber expansion to drive future revenue growth. The outlook for EPS growth is approximately 4.9%.
As of the latest quarter, the company’s net debt was approximately $135 billion. This high debt level constrains its financial flexibility. It’s in a bit of a double bind: it must pursue growth to improve the stock price or raise dividends, but to do this it requires enormous capital expenditure, possibly only via taking on even more debt or diluting existing shareholders.
I don’t see a positive way forward for AT&T despite its stability.
Retirement Stocks to Avoid: Boeing (BA)
Boeing (NYSE:BA) continues to recover from the 737 Max crisis and the ongoing PR disasters from leaks and whistleblowers.
The company is heavily leveraged and faces ongoing production challenges and regulatory scrutiny. For retirees, the high risk associated with Boeing’s stock, combined with its volatility, makes it a less-than-ideal holding in a retirement portfolio.
In 2024, two former Boeing employees, John Barnett and Joshua Dean, who had raised safety concerns, were found dead under tragic circumstances
The company has also been the subject of 32 complaints to the workplace safety regulator in the past three years, underscoring persistent safety and quality issues. These complaints have prompted further investigations.
This has culminated in BA losing 31.38% of its stock price value year-to-date. Furthermore, no amount of analysis can predict when the media circus will end for BA, or what the outcomes will be from these investigations.
BA may eventually recover, and I believe those who can weather the storm may ultimately benefit from holding it, but retirees don’t have the luxury of time on their side and must tread carefully.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) comes with high volatility and significant risk. The stock has experienced dramatic price swings and is heavily influenced by market sentiment.
Tesla faces growing competition from other electric vehicle (EV) manufacturers, particularly in key markets like China. Companies such as BYD (OTCMKTS:BYDDF) and NIO (NYSE:NIO) are rapidly expanding their market share, offering comparable EVs at competitive prices. This increased competition puts additional pressure on Tesla to continue cutting prices.
Biden’s tariffs on Chinese EVs may do a lot to curb the impact on the U.S. market, but Asia is looking to be the prime growth market, which is where these cheaper but still luxurious and modern vehicles have started to take over the streets and highways.
Furthermore, despite strong demand for its vehicles, Tesla has encountered production and delivery bottlenecks, partly due to logistical issues at its Shanghai plant. These disruptions have affected its ability to meet delivery targets, with the company forecasting deliveries of 1.8 million vehicles in 2024, below analysts’ expectations of 1.9 million.
TSLA is a good stock, but a risky one. Retirees should reconsider holding it if they aim to reduce volatility.
Altria (MO)
Last on the list of retirement stocks to avoid is Altria (NYSE:MO). The company faces long-term decline in smoking rates, regulatory pressures, and legal challenges. While the company offers a high dividend yield, it relies heavily on tobacco sales, a sector that is under increasing scrutiny and facing declining demand.
The company’s domestic cigarette shipment volume decreased by 10% in the first quarter of 2024. This decline is driven by macroeconomic pressures on consumer disposable income, increased competition from illicit e-vapor products.
Furthermore, the company has also faced setbacks in diversifying from this revenue stream, such as the loss on the disposition of its JUUL equity securities, which resulted in a non-cash pre-tax loss of $250 million.
I believe that MO is one of the biggest dividend traps out there for retirees, thanks in part to its dividend yield of 8.63%. This has come with capital erosion and stagnation over the past five years, and a monumental pivot seems unlikely as the years go by without showing solid progress on diversification.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.