Knowing which stocks to avoid is as important as knowing which ones to buy. Billionaire investor Warren Buffett prioritizes not losing money. And while your gains may be lower if you take on less risk, you will be more likely to come out ahead in the long run if you avoid overpriced stocks.
Two meme stocks that are probable money-losers next year are Ocugen (OCGN) and Rivian (RIVN 3.69%). Both companies have been struggling, and things may not get any better in 2022.
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1. Ocugen
Through the first nine months of 2021, healthcare company Ocugen didn't generate any revenue. Meanwhile, its operating expenses ballooned from $17.5 million a year ago to $43.5 million. If not for hype around a COVID-19 vaccine it's co-developing with India-based Bharat Biotech, this stock wouldn't be so volatile, hitting a peak of $18.77 in February, which is more than three times its price today.
Investors have been holding out hope that the Food and Drug Administration (FDA) will eventually authorize its vaccine, Covaxin, to be sold in the U.S. Under its agreement with Bharat, Ocugen will share in 45% of the profits the vaccine generates, but only in Canada and the U.S. The vaccine hasn't obtained authorization in either country, and there's little reason to expect that will change anytime soon.
At a valuation of more than $1 billion, investors are paying a premium for this unproven business. In December, Ocugen announced that the FDA accepted its Investigational New Drug application for its gene therapy candidate OCU400, which treats retinal diseases. That will pave the way for phase 1/2 trials of the drug. But even if it's successful, it could be years before it generates revenue. All the optimism stems from the hope that Ocugen can profit from Bharat's vaccine, but that looks like a long shot.
And with growth stocks struggling in recent months and investors turning more toward value stocks, Ocugen has seen the bullishness fade away. In just the past month, shares have fallen by more than 33% while the S&P 500 has declined by 3%. Without some positive news for investors surrounding the vaccine, Ocugen's stock is set to keep underperforming next year.
2. Rivian
Electric vehicle (EV) stocks have a way of captivating retail investors. And that can drive their valuations to astronomical levels. Rivian is no exception, and while it's no longer at a $100 billion valuation, its $84 billion market cap is still incredibly rich for a company that still hasn't generated any revenue through the first three quarters of 2021.
And it may be a while before meaningful revenue comes in. The EV novice anticipates that the 55,400 orders for its R1 electric trucks won't be filled until the end of 2023.
The EV market is expected to grow at a compound annual rate of more than 24% until 2028. Early investors of Rivian may be hoping this is their shot to get a do-over with the next Tesla.
But simply being in the EV market isn't enough to make the stock a good buy. Market share isn't a guarantee, and Ford, a top player in the industry, is proving to be another formidable rival. In December, the automaker said it had to stop at 200,000 reservations for its electric vehicles, due to strong demand. Tesla delivered more than 241,000 vehicles in the third quarter, ending Sept. 30.
Rivian is in a space with some big-name competitors. Regardless of what investors think of the company's trucks, the proof will be in the sales numbers. And right now, Rivian remains unproven and an incredibly risky buy. In the past month, its shares have plummeted more than 30%. And with its steep valuation, there's plenty of room to fall further in the new year.
