One of the best times to buy shares of a great company is after a sell-off, but not all beaten-down stocks are worth investing in. Some companies have been abandoned by investors for good reasons -- and in those cases, it's often best to stay on the sideline rather than to catch a falling knife.
With that in mind, let's look at two stocks that aren't worth investing in right now, even after significantly lagging the market in the past year: Inovio Pharmaceuticals (INO 3.49%) and iQiyi (IQ 6.26%).
1. Inovio Pharmaceuticals
The coronavirus-vaccine market is currently worth tens of billions of dollars. But not every company that initially set out to make waves in this market has been successful.
Inovio Pharmaceuticals was once considered a leader in the hunt for a COVID-19 vaccine but now has been left in the dust by competitors due to a series of regulatory headwinds -- which explains its poor performance in the past couple of years. However, the clinical-stage biotech hasn't given up. Last year, it started a phase 3 clinical trial for its candidate, INO-4800.
This study recently hit a bit of a snag. INO-4800 showed reduced levels of antibodies against omicron. As a result, Inovio will seek regulatory approval to change the primary endpoint of its late-stage study from "prevention of virologically confirmed COVID-19 disease" to "prevention of severe COVID-19 disease." In the meantime, the biotech has paused enrollment in this trial.
It could take several months for Inovio to complete this study and even longer for INO-4800 to earn regulatory approval -- if it gets that far. It's difficult to predict what the pandemic will look like by then. Perhaps new variants of the coronavirus will emerge and render current vaccines (and candidates) even less effective, or maybe the pandemic will have subsided for good.
Even if the pandemic doesn't go away, could Inovio carve out a solid niche for itself in this competitive space? After all, there are already multiple vaccines in use. And while the company thinks it can be successful by targeting countries with relatively low vaccination rates, others are already doing that.
Inovio Pharmaceuticals' candidate will have to prove that it's at least close to being as effective as the current market leaders. Otherwise, it's unlikely to generate much by way of revenue. All this uncertainty will continue to weigh on Inovio's stock performance.
Image source: Getty Images.
The company does have several other pipeline candidates. It's currently running a second phase 3 study for VGX-3100, a potential DNA vaccine for the treatment of an HPV-associated precancerous condition called cervical dysplasia. Inovio will release some results from this study during the second half of the year. Last year, Inovio reported positive but overall disappointing results from a first late-stage study for VGX-3100.
The future of this candidate -- which is Inovio Pharmaceuticals' leading program other than its coronavirus-related work -- is by no means certain. Given all these factors, investors should stay away from this company. There are much more attractive biotech stocks to consider buying right now.
2. iQiyi
iQiyi is one of the leading streaming platforms in China. It has sometimes been referred to as the Netflix of the country and has the backing of China-based tech-giant Baidu, which owns a majority stake in the company. With the financial support of Baidu, not to mention its dazzling reputation, one would expect iQiyi to be a no-brainer buy. Unfortunately, nothing could be further from the truth.
iQiyi has faced severe headwinds in the past few years, and the future doesn't seem any brighter. First, the pandemic disrupted the company's content releases. Second, iQiyi's content strategy has also been affected by the country's government, which has been cracking down on excessive fan culture. Third, iQiyi faces tough competition from competing platforms, most notably Tencent's Tencent Video.
That's not to mention iQiyi's recurrent net losses, a big no-no for investors in today's environment. The combination of these factors explains why iQiyi has performed poorly in the past couple of years.
To be fair, the tech company's stock recently jumped following better-than-expected fourth-quarter financial results. Among other things, management announced that it has been implementing various measures to cut costs and improve the company's operational efficiency.
While that's great news, it's worth noting that the company's revenue of $1.2 billion for the quarter remained pretty much flat, compared to the year-ago period, while its average daily number of total subscribing members of 97 million decreased by about 7.4% sequentially and by about 5.6% year over year. iQiyi's declining number of paying subscribers could continue to be a significant problem for the company, and it isn't clear whether it can permanently reverse that trend, given intense competition and content-production issues.
That's why, despite its better-than-expected fourth-quarter financial results, iQiyi isn't a buy right now.
