Amid market uncertainty, many investors may be looking to diversify away from some of the top market winners. Instead, they want to start looking at more defensive names. Some of the biggest tech stocks have continued to rally and drive the market to new all-time highs. But, we’re already seeing signs cracks are forming among certain names. And these three companies are showing some propensity for drops during times of crisis.
For those looking to position away from more cyclical tech names, consider selling these three right now. These companies could be among the biggest decliners of the large-cap tech stock group if we do see a recession. Yield curve inversions often don’t end well, particularly when they persist this long.
Without further ado, let’s dive in!
Peloton Interactive (PTON)
This tech stock absolutely soared during the pandemic. However, Peloton Interactive (NASDAQ:PTON) went from a big winner to a major market laggard in recent years.
Much of this can be tied to market forces, as well as the company’s own financial hurdles. With declining home workout demand, fierce competition, economic challenges and ongoing losses, PTON’s fundamentals were hit hard. Additionally, safety recalls and leadership changes have further dampened investor confidence. The stock plummeted sharply last year and continues a downward trend this year.
During this past earnings season, Peloton Interactive made headlines with its 20% stock surge in a week. However, despite the company’s efforts, fiscal Q3 results showed persistent challenges. These include declining revenue and flat subscriber growth, along with leading Chief Executive Officer (CEO) Barry McCarthy announcement of his departure.
In May, PTON stock surged due to speculation around a potential buyout of the business. Currently valued at $1.6 billion, Peloton Interactive is now exerting more efforts to cut costs. However, these cost cuts might cause more of a problem for investors, particularly if profitability doesn’t arrive sooner than later.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) is well known as the king of the electric vehicle (EV) sector. However, like many of its counterparts in this sector, it faces a myriad of challenges. Sales growth hasn’t remained as robust as investors previously thought, bringing into question the company’s high price-earnings (P/E) ratio of 47-times.
Also, increasingly tight competition and cheaper alternatives becoming available in the market have propelled TSLA stock lower this year. In many ways, Tesla has led the price-cutting war, slashing prices to retain demand in its core consumer segments. With these price cuts have come lower margins, something that many investors focused on the bottom line clearly don’t like to see.
Therefore, until interest rates are lowered and the macro environment improves, these concerns are likely to hamper the stock. Analysts tend to agree, with those at JPMorgan and Bernstein believing Tesla’s disappointing Q1 reports says enough for investors to steer clear of the stock. Tesla delivered 386,810 units during the quarter, while analysts expected the company to sell 457,000 units. This underperformance makes TSLA’s valuation unjustifiable, at least to me.
Netflix (NFLX)
Streaming platform Netflix (NASDAQ:NFLX) has been widely popular for new generations, and this stock has clearly rewarded its investors in recent years. However, Netflix now suffers tight competition from other platforms, especially now that users are not happy about the app’s tightened password sharing.
To sustain growth, Netflix needs innovative strategies beyond this crackdown to expand its subscriber base and revenue. The company’s P/E ratio sits at a relatively high 45-times. And with revenue slowing, this certainly poses challenges for fundamentals-oriented investors right now.
According to Wall Street analysts, NFLX stock is currently a moderate buy. Considering the range of high-growth Magnificent 7 options available, will Netflix will be able to see the same capital inflows into its stock as its peers will? I think that’s unlikely. And while index-related buying may help the stock during this bull market rally, how long this rally can be maintained?
Therefore, Netflix is among the Magnificent 7 stocks to consider unloading right now. Better options avail with more attractive valuations and better cash flow growth projections.
On the date of publication, Chris MacDonald 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.
