As challenging as 2022 has been for many companies, 2023 could be worse if a recession occurs. That means investors need to be more careful about the stocks they decide to hold in their portfolios heading into next year.
Two stocks I would steer clear of today include Tilray Brands (TLRY) and DoorDash (DASH -2.01%). Despite the promise of growth at times, these stocks could struggle in 2023.
1. Tilray Brands
Next year will be a crucial one for cannabis producer Tilray Brands. That's because its fiscal 2023 has already begun, and it's just one year away from fiscal 2024, by which time the company has set an ambitious goal of hitting $4 billion in annual income. That's not going to be easy given that the company's sales haven't shown much growth over the past four quarters.
TLRY Revenue (Quarterly) data by YCharts.
The pot producer is at an annual run rate of about $600 million in revenue -- nowhere near $4 billion. Tilray has been busy with acquisitions and will likely pursue more over the next 12 months. It will have to show some significant growth next year to convince investors it's on track to hit its goal for 2024.
I believe the most likely scenario is that CEO Irwin Simon ends up pulling the forecast, blaming a lack of progress on legalization in the U.S. and Europe -- two key markets -- for the inevitable shortfall. If that happens, the rug could get pulled from Tilray's stock, sending its shares into a nosedive. All the hype the CEO has pumped into the stock could ultimately do more harm than good for investors.
This year, the pot stock has already fallen 45% in value, but it still trades at more than three times its sales and definitely has room to fall even lower. Of the price targets (typically covering a period of a year) analysts have set for Tilray within the past two months, the highest price target is $4.50, and the lowest is $2.00. So there isn't much optimism around the stock.
Next year could be a make-or-break year for Tilray, and I don't expect things will turn out in the stock's favor. Investors willing to stomach the risk should brace for what could be a tough year in 2023, as inflation and a worsening economy could make it difficult for Tilray to generate much (if any) growth.
2. DoorDash
Food delivery company DoorDash was a hot buy during the early stages of the pandemic when lockdowns made its services popular with consumers stuck at home or simply hesitant to go out to a restaurant. Since the initial surge in revenue, the company's quarter-over-quarter sales growth has been sluggish.
DASH Revenue (QoQ Growth) data by YCharts. QoQ = quarter over quarter.
For the period ended Sept. 30, DoorDash's sales rose 33% year over year to $1.7 billion. However, the company's operating loss tripled from $100 million in the prior-year period to $308 million.
While things still look OK right now, the danger I see looming ahead is that there could be significant declines in sales next year as consumers tighten their budgets. Credit card debt is now near all-time highs, and credit card balances soared 15% year over year last quarter -- the largest annual increase in more than two decades.
It paints a concerning picture for 2023, one that could mean fewer consumers opt for food delivery, an expense that might be among the easiest to cut back on in a recession. That's why although DoorDash's sales appear stable right now, investors should be careful not to expect that to continue next year.
