Stocks with falling prices can sometimes become good long-term buys. Market traders overreacting to short-term issues provide the classic buying opportunity that value investors look for. But falling prices usually happen for a reason, and there are just as many cases where real concerns about the underlying businesses justify the price drop and provide a fair warning that the stock is best avoided.
The three stocks featured here have been crashing lately and may head even lower. They are Medical Properties Trust (MPW -1.10%), C3.ai (AI 3.02%), and Vinfast Auto (VFS -3.35%). Here's why these three stocks may still be too risky to buy.
1. Medical Properties Trust
Medical Properties Trust should be a safer stock than it's proving to be. It's a real estate investment trust (REIT), which means the company owns properties and generates revenue by collecting rent from tenants. As long as those tenants are doing well, Medical Properties' top and bottom lines are stable and consistent.
Despite its focus on the healthcare industry -- its tenants are primarily hospitals -- and the stability that industry would normally imply, Medical Properties hasn't been a safe REIT to hold lately.
On Aug. 21, Medical Properties announced that it would be "updating" its capital allocation strategy so that it can strengthen its balance sheet. Unfortunately, this included slashing its quarterly dividend payment from $0.29 per share to $0.15 per share. Even after that reduction, the stock at its current share price yields 11.8%.
What's encouraging is that for the second quarter, Medical Properties' normalized funds from operations totaled $0.48 per share. Investors, however, don't appear to be feeling great about the stock even though the dividend may be looking safer. Share prices of Medical Properties are down 45% in just the past three months.
The problem is that the REIT had issues collecting rent this year from a key tenant, Prospect Medical. With economic conditions potentially worsening, Medical Properties may not be out of the woods just yet. As long as the risk is still there, this will be a volatile stock to hold. Investors are better off steering clear of it for now.
2. C3.ai
Investors were bullish about C3.ai for much of the year. The pure-play artificial intelligence (AI) company benefited from the rising popularity of ChatGPT and the emergence of the AI trend in general. (It also probably didn't hurt that it has "AI" as its ticker.) Year to date, share prices of C3.ai are up by around 120%. However, over the past three months, those share prices fell by more than 35%.
The price drop was in response to an underwhelming earnings report. While some AI companies are reporting tremendous sales growth this year, that isn't the case for C3.ai. For the period ending July 31, sales rose a relatively modest 11% year over year to $72.4 million. Management also didn't upgrade its guidance, suggesting that demand isn't overly strong and that it won't push the company's growth rate much higher.
Considering the increased interest in AI, investors expected a surging interest in AI solutions from C3.ai, but that hasn't proven to be the case. Unless C3.ai can show it's benefitting from the AI revolution, its stock price is likely to keep falling.
3. Vinfast
Vietnamese electric vehicle (EV) maker Vinfast went public earlier this year through a reverse merger with a special purpose acquisition company (SPAC). SPACs were popular a few years ago, but have become rare since. Vinfast proved that the hype around these types of stocks isn't dead as its shares hit an impressive high of $93 each on Aug. 28, just a few weeks after opening at a price of only $11.10.
But that initial excitement quickly evaporated. Last week, Vinfast's stock closed barely above $8 a share. The EV maker reported its third-quarter results on Oct. 5, which showed impressive revenue growth of 159% year over year on sales of $342.7 million. However with its cost of goods sold higher than its revenue, the company incurred a gross loss of $102.4 million, and its total net loss sits at a whopping $622.9 million.
At a time when EV competition is ramping up and the established EV makers like Tesla are cutting prices on their vehicles, it won't be easy for Vinfast to improve its bottom line in the foreseeable future. Given the stock's volatile history and with Vinfast still having a hefty valuation of close to $20 billion, there's definitely room for this stock to fall. Given its high risk, Vinfast is a stock only suitable for investors with a high tolerance for volatility.
