Prudent investors should stick to the game plan in 2024. That means that they should continue to find overpriced stocks to sell of companies that look fundamentally unsound. This may seem harder to do in 2024 as it looks like rate cuts will soon come. The point here is that cheaper money will soon be available and that will make some less than desirable firms look strong again.
Those firms could very well see their shares rise but shrewd investors need to stay the course and ignore any such activity. That means it’s time to again take a look at overpriced shares with weak fundamentals and cull another round of stocks to sell.
Affirm Holdings (AFRM)
At its heart, Affirm Holdings (NASDAQ:AFRM) is simply a poorly run company and that makes the stock it represents one to sell.
Affirm Holdings is essentially a credit company. Instead of engaging in the traditional credit card business it is more focused on the related buy now pay later (BNPL) sector. The basic difference is that BNPL allows consumers to pay for purchases over several monthly periodic installments rather than all at once.
It isn’t an inherently weak business, it’s just that Affirm Holdings has not been able to make money from it. The company continues to brag about strong top line growth while conveniently disregarding the fact that it loses hundreds of millions of dollars each quarter.
The company is amazingly bad at creating value. The average cost of capital for the firm is nearly 19%. that’s already high in and of itself. However, what’s even more shocking is the fact that the company generates a negative return of 10% on that capital. That is a perfect example of why investors should expect the company to worsen.
Lucid (LCID)
Lucid (NASDAQ:LCID) stock is overpriced even at under $3. That’s not what most of Wall Street believes and it’s very easy to find target prices that suggest Lucid could produce 100% or even 200% returns in the coming year. Ignore any such suggestions because there are many reasons to believe Lucid will head lower.
The most obvious reason to believe that LCID will continue to see all kinds of problems is very simple. The reason is that 2024 is shaping up to be very similar to 2023. The company produced just short of 8,500 vehicles in all of 2023. It is expected to produce only 9,000 in 2024 per recent production guidance.
So, Lucid is basically going to be the same company that it was last year. Unfortunately, that’s a company that lost more than $2.8 billion dollars in producing less than 10,000 vehicles. The only reason to believe in Lucid in 2024 is that the Federal Reserve is expected to implement rate cuts. That will make growth stocks like lucid seem more attractive, but that is not a reason to buy. Instead, consider just how much trouble the company has had in its short life.
Dollar Tree (DLTR)
Dollar Tree (NASDAQ:DLTR) essentially competes against firms that do what it does, but do it better. Customers who want discount goods will either go to Dollar General (NYSE:DG) or Walmart (NYSE:WMT). Both of those stocks represent better run companies which is part of the reason investors are dumping Dollar Tree stock at the moment.
The direct reason is that Dollar Tree recently announced earnings that showed a per share loss of $7.85. That translated to a net loss of $1.71 billion during the quarter. Unsurprisingly, the company also announced that it will shutter approximately 1,000 stores in an effort to revitalize operations.
The problem, per Dollar Tree management, is that the company is facing increased competition from other discount retailers. That’s the nature of business. The other problem, aside from massive losses, is that the company also offered guidance that fell short of Wall Street’s expectations. That combination of factors is likely to send Dollar Tree share prices lower moving forward.
On the date of publication, Alex Sirois 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.
