Congratulations, investors! You've made it! We're less than 24 hours from closing the curtain on 2020, which for most folks can't come soon enough.
Although the stock market was incredibly volatile this year, 2020 will go down as yet another green year. In fact, it'll mark the 38th time in the past 46 years that the benchmark S&P 500's total return (including dividends) was positive. But this doesn't mean all stocks fared well.
With this being the last day of the year to take advantage of tax-loss harvesting, I'd suggest selling the following five poorly performing stocks right now.
U.S. marijuana stocks had a pretty good year. However, the same can't be said of our neighbors to the north, which are still struggling with federal and provincial regulatory issues. Having lost two-thirds of its value in 2020 and 88% over the trailing three-year period, it's time for investors to take their lumps and move on from Aurora Cannabis (NYSE:ACB).
Perhaps the biggest issue with Aurora is its complete disregard for its shareholders. For the past six years, the company has financed its day-to-day operations and acquisitions by selling its own stock. Since April 2019, it's done this via at-the-market (ATM) offerings. The company has already completed separate ATM offerings of $400 million and $250 million, and recently introduced another $500 million ATM offering. The point is that Aurora's outstanding share count has ballooned over 11,800% in the past six years. As this share count rises, existing investors are being diluted into oblivion.
Investors should also be skeptical of management's efforts to reach positive earnings before interest, taxes, depreciation, and amortization (EBITDA). Aurora's executives have moved the goalpost to reach positive EBITDA on numerous occasions, even with stringent cost cuts, which have included closing five smaller facilities and halting construction on two large projects. It's a pot stock worth selling right now.
Even though its shares are technically up 33% in 2020, the vast majority of investors who piled into electric-vehicle (EV) stock Nikola (NASDAQ:NKLA) did so well after it began its mid-summer romp higher. Over the past six months, it has shed 78% of its value.
The Nikola story looked promising in September when it appeared close to securing a $2 billion equity investment from General Motors (NYSE: GM). It was expected that General Motors would handle the production of Nikola's first mass-produced EV pickup truck, the Badger. But after many months of discussions, the deal fell through. GM and Nikola are still working together in some capacity, but there's no equity investment involved, and GM isn't building the Badger for Nikola. In fact, Nikola retired the Badger before any vehicles were produced.
To make matters worse, Nikola is being probed by the Securities and Exchange Commission (SEC) following allegations from short-side firm Hindenburg Research that Nikola and its founder, Trevor Milton, engaged in fraud. It's worth pointing out that Milton also stepped down from his role as executive chairman via a middle-of-the-night tweet, which is odd, to say the least.
Nikola is a stock that investors can confidently sell right now to preserve their remaining capital.
American Airlines Group
Another stock that's a long overdue sell is American Airlines Group (NASDAQ:AAL). The airline industry is a capital-intensive, low-margin operating model, and American is very likely the worst of the worst in this truly avoidable industry.
One of the most notable issues for American Airlines is its balance sheet. It's no secret that the coronavirus outbreak is disrupting air travel like never before, and it's unclear when travelers will return to the skies. American has had to raise capital and seek coronavirus disease 2019 (COVID-19) relief loans to ensure it has enough money to navigate its way through this mess. However, its balance sheet now features about $33 billion in net debt and over $41 billion in total debt. Even if it survives this recession, the company will be strangled by its debt for years to come.
As my Foolish colleague Adam Levine-Weinberg pointed out, American Airlines also has a history of wasting investors' money. Back in 2018, it chose to retire commercial planes well before their useful period was up. Modernizing its fleet before it was needed is yet another reason American's debt load is higher than all other airline stocks.
Now with no dividend or share buybacks, American Airlines' stock is wholly avoidable.
Oil stocks were also clobbered by the COVID-19 pandemic. Lockdowns during the spring in the U.S. and other developed countries caused crude oil demand to crater and, for a brief period, pushed West Texas Intermediate futures into negative territory. This all spells bad news for U.S. shale producer Occidental Petroleum (NYSE:OXY), which is down 57% in 2020 through this past weekend.
Occidental's acquisition of Anadarko, which closed in 2019, simply couldn't have come at a worse time. To be fair, no one could have foreseen the unprecedented disruption that COVID-19 would cause in the oil industry. Nevertheless, it's left Occidental with over $41 billion in outstanding debt, which threatens the long-term viability of the company. Without major divestitures and significant cost-cutting, it's unclear if Occidental will survive to see the long term.
What's more, Occidental Petroleum took a $10 billion investment from Warren Buffett's Berkshire Hathaway in 2019 to help facilitate the Anadarko buyout. In return, Berkshire received preferred stock with an 8% annual yield. Occidental either has to fork over $200 million in cash each quarter to Buffett's company or issue common stock to Berkshire Hathaway in the amount of $200 million.
Suffice it to say, Occidental is in some serious trouble, and selling now to preserve what's left of your initial investment might be a smart idea.
Lastly, investors should strongly consider dumping biotech blue chip Biogen (NASDAQ:BIIB), which has been whipsawed by Food and Drug Administration (FDA) panel votes and legal battles in 2020. Shares are down 16% through this past weekend.
One of the biggest cash-flow drivers for years has been multiple sclerosis (MS) blockbuster drug Tecfidera. Through the first nine months of 2020, Tecfidera has generated about $3.2 billion in sales. The problem is that Biogen lost a key patent battle in court earlier this year, paving the way for generic drugmakers to launch copycats of its MS blockbuster. Previously expected to be protected through 2028, Tecfidera's cash flow could be squeezed significantly moving forward.
The other issue for Biogen is that the experimental Alzheimer's disease drug aducanumab failed to find an audience with an FDA panel. Although the FDA is not required to follow the advice of its panel, the panel overwhelming voted against multiple questions regarding aducanumab's efficacy.
With little in the way of near-term catalysts, it could be time to say goodbye to this previous cash cow.