The current recovery in the stock market has been uneven. Tech is booming, financials are lagging and everything in between is a mixed bag. This is frustrating, especially as some once dominant stocks continue to fall to new lows. This has created some stocks with big red flags that could crash.
Many strong businesses that are household names are seeing their share prices continue to slump as the market contends with a range of issues that include high interest rates, failing banks and a looming debt crisis in Congress. In such a volatile stock market, investors need to steer clear of troubled stocks and avoid risking capital unnecessarily. While we are sure to eventually enter a new bull market where a rising tide lifts all boats, we are not there yet. Here is a warning and three stocks to avoid with big red flags that could tank your portfolio.
Walt Disney (DIS)
Walt Disney (NYSE:DIS) has been a troubled stock for some time now, and the situation appears to be getting worse. The latest blow came when the House of Mouse reported its fiscal second quarter earnings on May 10. DIS stock fell 9% after the earnings print as the company disclosed that it lost four million subscribers at its Disney+ streaming service during the quarter which ended March 31. Sure, the company’s theme parks saw their revenue rise 17% year-over-year, but all anyone seems to care about is the streaming subscriptions.
Two years ago, DIS stock was trading at just under $200 and flirting with an all-time high. Since then, the share price has plunged 53%. To be fair, Disney CEO Bob Iger is undertaking a massive restructuring of the company that has included 7,000 job cuts, with more layoffs likely to come. The company did announce plans to add Hulu content to the Disney+ streaming service, while also raising the price of its ad-free tier. In time, these changes, and others, could turn Disney around. The question is how much pain can shareholders endure?
Speaking of once high-flying stocks that have fallen on hard times, we have pharmaceutical company Moderna (NASDAQ:MRNA). This stock was a pandemic darling as the company raced to bring a Covid-19 vaccine to the masses. MRNA stock rose 1,500% between March 2020 and September 2021. However, with most of the world now vaccinated against the respiratory disease, and with no other vaccines or medications commercially available, Moderna’s stock has plunged 72% and continues to slide lower.
This is an unfortunate turn of events as Moderna’s mRNA vaccines are truly cutting edge and innovative. However, the company and its shareholders are suffering due to a thin product pipeline. To date, the Covid-19 vaccine has been the only pharmaceutical that Moderna has successfully brought to market. While the company is developing treatments for other diseases such as cancer, as well as a vaccine that reportedly protects against both Covid-19 and influenza, it’s not clear when or if those medications will make it to consumers.
What’s disappointing about Nike (NYSE:NKE) stock is that it hasn’t done much of anything lately. Year-to-date, Nike shares are only up 3%. This is frustrating as the company continues to report better-than-expected earnings and retains a commanding share of the sneaker and athletic apparel market. At the end of March, Nike announced earnings per share of 79 cents versus 55 cents that was expected. Additionally, revenue totaled $12.39 billion compared to $11.47 billion that was forecast.
Despite a string of strong earnings, NKE stock is stuck in neutral. This is due to two issues, slumping sales in China and the continued wind down of excessive inventory. Nike said sales in China, its third-biggest market by revenue, fell 8% during the most recent quarter to $1.99 billion. China’s Covid-19 policies have hurt Nike’s sales in the country of 1.4 billion people. Also, Nike said its gross margins declined to 43.3%, a decrease of 3.3%, due to higher markdowns and promotions used to liquidate its inventory.
Both the issues in China and the company’s bloated inventory are sure to resolve themselves in time. How long it takes remains a question mark shaped cloud hanging over NKE stock.
On the date of publication, Joel Baglole held a long position in DIS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.