Americans and investors alike have witnessed a degree of disruption over the past month that they've arguably never dealt with before, and the coronavirus disease 2019 (COVID-19) is to blame.
This lung-focused illness, which is now looking relatively well-contained within mainland China, the epicenter of the initial outbreak, has grown rapidly in a number of other countries around the world. As of March 21, more than 303,000 confirmed cases were reported worldwide, leading to almost 13,000 deaths, according to data from Johns Hopkins University. Most notably, the number of positive cases in the United States have skyrocketed to over 41,000.
Image source: Getty Images.
In order to slow the spread of COVID-19 (i.e., flatten the curve) and ensure that our healthcare system doesn't become overwhelmed, the U.S. has begun to take aggressive measures. States such as California, New York, and Pennsylvania have ordered the shutdown of nonessential businesses, while other states have chosen to close bars and restaurants. Though such moves are bound to save lives, they're expected to cause plenty of short-term damage to state and local economies. It's this uncertainty and the fear of a recession that's pushed the stock market off of a cliff in recent weeks and sent all three major indexes into bear market territory faster than at any point in history.
The good news here is that progress will eventually be made on treatments and an antiviral vaccine against the COVID-19 illness.
Additionally, every single previous stock market correction or bear market has eventually been erased by a bull-market rally. With an historic average annual return of 7%, inclusive of dividend reinvestment, the stock market tends to double investors' money about once a decade. Those are pretty good odds for investors who are willing to be patient and allow their investment theses to take shape.
In recent weeks, I've offered ways for investors use this correction as a means to buy into brand-name companies, high-quality income stocks, and businesses that are just downright cheap. However, having cash to invest at an opportune time doesn't mean throwing a dart at every company you're familiar with. There are a number of well-known stocks that, frankly, you should keep your cash away from at all costs.
Image source: American Airlines.
American Airlines Group
There's probably not an industry that's been more directly and negatively impacted from the coronavirus than airlines. It took a matter of weeks before the major airlines mentioned the need for a bailout to the federal government, with many slashing capacity and eliminating highly profitable international flights. But no airline is in worse shape financially than American Airlines Group (AAL 4.61%).
While it's incredibly common for capital-needy airlines to lean on debt for the purchase of new planes, American has been looser with its debt usage than any other airline. As of the end of its most recent quarter, American Airlines Group had roughly $3.8 billion in cash and a massive $33.4 billion in debt. And, as my colleague Adam Levine-Weinberg has previously pointed out, American's need to spend frivolously and modernize its fleet was largely unnecessary and has cost its shareholders dearly.
Even if American Airlines is lucky enough to receive a bailout, its balance sheet is damaged goods. That makes this stock one to avoid.
A Model S sedan plugged in to charge. Image source: Tesla.
Tesla
There is, admittedly, not a more polarizing stock out there than electric vehicle producer Tesla (TSLA +3.87%) -- you either love it or hate it. Though "hate" might be too strong a word, I definitely don't like Tesla's valuation here for a number of reasons and would suggest investors keep their distance.
Arguably the biggest issue for Tesla to overcome is going to be cheap oil. Last week, West Texas Intermediate hit its lowest per-barrel price since 2002. That's a problem because rising crude prices, and therefore higher costs at the pump, are one of the key drivers in getting consumers to switch from fossil fuel-powered autos to electric. Don't get me wrong, the green-energy movement will still have some consumers making the switch. However, Tesla's competitive cost advantage over gas-powered vehicles is severely compromised.
Also, while Tesla does look as if it has an adequate amount of capital to survive a short but steep economic downturn, its higher vehicle price points relative to fossil fuel-powered vehicles could place it at a disadvantage once auto sales do stabilize. If Tesla were profitable on a generally accepted accounting principles (GAAP) basis it wouldn't be as big of an issue, but Tesla continues to lose boatloads of money on a GAAP basis. I believe companies with huge premiums like Tesla are not the place to put your cash to work right now.
Image source: Getty Images.
Macy's
As a former Macy's (M 4.05%) employee in my younger days, I've been rooting for a turnaround. But the time has come to admit that Macy's is in serious trouble, and the coronavirus outbreak may be the straw that breaks the proverbial camel's back.
Even prior to COVID-19, Macy's was struggling. Online retailers have been able to easily undercut department stores on price (remember, online retailers have less overhead costs), and shopping from the comfort of your couch or bed beats having to drive to a potentially crowded mall. This is what led Macy's in February to announce plans to close 125 stores (nearly 20% of its open locations) and eliminate 2,000 jobs over the next three years.
Unfortunately, cost-cutting can only prop up a business for so long. Macy's expects to realize $1.5 billion in annual savings by the end of 2022, and just last week halted its $1.51 per-share aggregate annual dividend. This should save more than $465 million in outgoing cash flow. But this does little to resolve its roughly $6.4 billion in net debt or its consistently declining sales figures. Nothing short of a complete brand-identity shift will make Macy's investable.
