For many investors, the New Year is a time of reflection. They're thinking about what trends they want to buy into for the upcoming year and what stocks might help make them rich.
However, reflection is a two-way street. Just as there are great companies that can make investors wealthy, there are stocks that could cost investors a lot of money and should be avoided at all costs. Below are five stocks investors should consider selling right now.
Image source: Getty Images.
AMC Entertainment
It's no secret that I believe movie theater chain AMC Entertainment (AMC 8.23%) is the most overvalued stock on Wall Street.
For those of you who may not have followed the AMC "made for TV drama" that's occurred this year, the company's shares are up more than 1,200% following an epic short squeeze earlier this year. Short-sellers (investors betting on a security's price to decline) were caught off-guard when AMC was able to save itself from imminent bankruptcy by selling 164 million shares of stock and issuing high-interest debt. But with this short squeeze now in the rearview mirror, AMC's abysmal operating performance, bloated balance sheet, and declining bargaining power with movie studios are in plain view.
For example, before the pandemic took effect, AMC was regularly securing theatrical exclusivity deals of 75 to 90 days. Nowadays, AMC is lucky to secure 45-day theatrical exclusivity. Even taking into account that most revenue is picked up in the first couple of weeks, this 30- to 45-day reduction in exclusivity is going to pinch AMC. It's also bad news considering that inflation-adjusted domestic box office sales have been in decline since 2002.
The bigger issue, as I've stated over and over, is AMC can't make good on its liabilities. It has $5.45 billion in outstanding debt at roughly an 8% average interest rate. Keep that rate in mind, because lending rates are pretty much at historic lows. It also has over $1 billion in aggregate debt due in late 2026 and mid-2027 that's valued at more than 30% below face value. With the company hemorrhaging cash and not able to sell any additional stock thanks to its impassioned but misguided retail investors, it looks to be making a slow walk toward a chapter 11 bankruptcy reorganization.
Suffice it to say, AMC Entertainment is a stock investors can confidently sell right now.
Image source: Getty Images.
MicroStrategy
A second stock investors should strongly consider selling right now is "enterprise analytics software company" MicroStrategy (MSTR 12.77%). I have "enterprise analytics software company" in quotations because CEO Michael Saylor has effectively ignored this stagnant part of the company's operations and turned MicroStrategy into a leveraged gamble on Bitcoin (BTC 0.28%).
According to the company's investor presentation earlier this month, it's holding 122,478 Bitcoin at an average price of $29,861. The issue with this strategy is threefold, in my view.
First, I'm not convinced Bitcoin is a sound investment. I recently outlined my views on Bitcoin, which centers on its false scarcity and it's less-than-stellar network performance. Bitcoin is constantly being out-innovated when it comes to payments and nonfinancial blockchain applications.
Second, MicroStrategy destroyed a reasonably safe balance sheet by piling on more than $2 billion in debt and issuing $900 million in stock, all of which was used to buy Bitcoin. Saylor has leveraged a public company's future on an asset that produces nothing.
And third, I believe Saylor is a poor leader. Earlier this year, Saylor told the world in an interview to "go mortgage your house and buy Bitcoin with it." This is incredibly bad advice, and all the more reason to avoid MicroStrategy.
Image source: Getty Images.
Cassava Sciences
Another stock investors can sell right now is clinical-stage biotech stock Cassava Sciences (SAVA 4.38%).
Cassava made waves in the first quarter when it announced positive interim analysis data from its open-label study of simufilam for patients with Alzheimer's disease. The data showed both cognition and behavior score improvements at the six-month mark. Since Alzheimer's has no cure, any positive clinical data tends to be well-received.
But there are two glaring issues that should send folks scurrying to the sidelines. First of all, the track record of success for clinical-stage therapeutics targeting Alzheimer's disease is incredibly low. While we've witnessed plenty of early stage success, virtually all late-stage Alzheimer's trials end in failure. This isn't a knock against the research, so much as recognizing that tackling the blood-brain barrier is tricky.
The second concern is that Cassava Sciences is facing allegations of manipulating its trial data. The company also announced in November that federal agencies are investigating its practices, without specifically naming the federal agencies in question. Keeping in mind that some of the allegations have come from firms shorting the stock, this is a headache you're better off letting someone else deal with.
Image source: Getty Images.
GameStop
Investors should also considering selling the original meme stock, GameStop (GME -3.94%).
A few weeks before AMC ascended to the heavens on its short squeeze, GameStop's high short interest attracted retail investors. In fact, GameStop's short interest was higher than any publicly traded company, as of mid-January, making it the perfect candidate for an epic squeeze. However, with this short-term event now over, investors are forced to grapple with GameStop's poor operating performance.
On the positive side, GameStop was able to raise sufficient capital from selling its stock to rid its balance sheet of debt. This net-cash position, coupled with the long-term growth potential of digital gaming, means there are no bankruptcy concerns, unlike with AMC.
But GameStop was notably late in shifting its strategy to include digital gaming. Nowadays, the company is busy shuttering stores in an effort to lower its expenses and back its way into the profit column. The company's large brick-and-mortar presence is expected to work against it for the foreseeable future, and could keep it from profitability for a few years.
Further, Wall Street has been unimpressed with management's lack of concrete steps that'll be taken to turn the business around. Even with a hefty cash balance, GameStop is grossly overvalued.
A Tesla Model S charging. Image source: Tesla Motors.
Tesla Motors
Last, but certainly not least, investors should consider giving electric vehicle (EV) manufacturer Tesla Motors (TSLA -3.40%) the boot.
Tesla has managed to do a lot of great things with its first-mover advantage. The company is on pace to deliver more than 800,000 EVs in 2021, and CEO Elon Musk has watched his company deliver its two largest operating profits since inception this year. The range, capacity, and power associated with Tesla's batteries has been superior as well.
Yet, these competitive advantages are unlikely to last given that all of the world's largest auto companies are throwing billions of dollars at EV research. For instance, General Motors and Ford Motor Company are respectively investing $35 billion and $30 billion in next-generation automobiles, with both companies bringing 30 new EVs to market by 2025. Tesla's first-mover advantage will fade sooner than later.
What's more, Tesla's income statement has been aided by selling Bitcoin at a profit earlier this year, as well as selling renewable energy credits (RECs) to other automakers. Take away these RECs and Tesla's profits aren't even remotely as impressive.
Valued at nearly 130 times Wall Street's forward-year earnings in an industry where single-digit earnings multiples are commonplace, I'd have to think Tesla's stock is due for a major reversion.
