The tech sector has been the best-performing sector in 2023. And I hope that your portfolio includes one or more of the “Magnificent 7” stocks that have posted most of the gains. This sector also includes artificial intelligence (AI) stocks, many outpacing the broader market. However, a quick look at analyst sentiment suggests there are some tech stocks to avoid.
Analyst sentiment is one fundamental metric investors can use to predict short-term stock performance. Analysts work on both the buy-side and sell-side and have access to company information and top management that retail investors simply do not.
The most common ratings that analysts provide are buy, hold or sell. In recent years, however, these ratings have become more nuanced, and terms like Reduce have become commonplace. That is a more elegant way of telling investors it may be time to trim their position in a stock. The signal means that in the short term (i.e., the next 12 to 18 months), the stock will likely underperform the market.
So, before you decide which tech stocks to buy in the second half, it’s a good time to consider which tech stocks to avoid. Here are three of these high-risk tech stocks.
Logitech International (LOGI)
Logitech International (NASDAQ:LOGI) makes hardware like mice, keyboards, and accessories for mobile devices. So, it shouldn’t be surprising that the company was a big winner during the pandemic. LOGI stock soared approximately 250% from March 2020 to June 2021 as companies and individuals scrambled to create their own new normal.
However, because these products have long shelf lives, the company hasn’t been able to sustain that growth. The stock is down over 50% from that lofty high and is down about 2% in 2023. And the company’s Chief Executive Officer (CEO), Bracken Darrell, resigned in June to take the same position with VF Corporation (NYSE:VFC).
Not surprisingly, the company is experiencing year-over-year revenue and earnings declines. Many analysts have a consensus Hold rating on the stock, but others advise selling. The ratings are just another reason for investors to consider this one of the tech stocks to avoid in the second half of the year.
HP Inc. (HPQ)
HP Inc. (NYSE:HPQ) is next on this list of tech stocks to avoid. HP Inc. is best known for selling personal computers, printers, and other solutions for enterprise customers. It has a similar story to Logitech in that the company was a pandemic winner. And it’s also like Logitech because the company is also experiencing declining revenue and earnings due to falling PC sales.
That factor has taken the stock down from its all-time high in 2021. However, the stock may have found a floor and is, in fact, up 23% in 2023.
The reason for the more stable performance is that HP has something that Logitech does not. That something is a solid dividend.
HP has increased its dividend for the last 13 consecutive years and has a sustainable payout ratio of around 39%. The dividend is not a bad reason to own HPQ stock, but it shouldn’t be the only reason you own it. Right now, that may be the case for many people. Analysts are generally recommending a reduction of HP stock.
Rocket Companies (RKT)
Rocket Companies (NYSE:RKT) presents investors with an interesting conundrum. On the one hand, RKT stock is up nearly 47% in 2023. That puts it on par with the hottest tech stocks.
But the question is why? Revenue and earnings are both dropping sharply, which has been the case for several quarters.
The answer may be that many investors believe the housing market isn’t going to get worse. By extension, that means it is likely to get better. When it does, the fintech company, which is also one of this country’s largest mortgage underwriters, will look extremely undervalued.
Speculative investors with a long time horizon may be rewarded for their patience. But investing in RKT stock for the short term means counting on a lot of things to go right. One of those circumstances would be a continuation of the Federal Reserve’s pause on interest rate hikes.
However, the Fed is likely to increase interest rates by another 25 basis points in July. That means mortgage rates are probably going up again.
Rocket has been successful in changing the way consumers shop for mortgages. In time, RKT stock will be undervalued again. But for now, it’s not, and analysts agree — mostly recommending a hold or sell position.
On the date of publication, Chris Markoch did not hold (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.
