Let's be honest: Not all investments turn out to be winners. It's simply a fact that some promising stocks will turn into lemons. And it's why investing in 25 or more companies is so important -- it helps spread your risk by diversifying your portfolio.
Of course, the best case would be to avoid names that could sabotage your portfolio altogether. So, here's a look at two names that I think are better left on the sidelines.
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fuboTV
First up is fuboTV (FUBO 1.46%), the operator of a live TV streaming platform. Similar to the cable TV packages of old, fuboTV boasts more than 220 channels to choose from, depending on which packages and add-ons a user selects. But while that figure sounds impressive, the company's channel lineup has some notable gaps. For example, it does not offer CNN, History, Lifetime, TNT, TBS, or HBO.
This leads to the first knock on fuboTV: Consumers already have a plethora of streaming options to choose from. Deep-pocketed competitors like Netflix, Walt Disney, Apple, Paramount, Warner Bros. Discovery, Amazon, and Alphabet (through its YouTube segment) are all competing for the same customers.
In addition to the stiff competition it faces, fuboTV's financial state should give investors pause. To start, the company is unprofitable. Over the last 12 months, fuboTV has posted a net loss of $339 million. What's more, the company's cash burn is a real concern. As of its most recent quarter, fuboTV had $294 million in cash and equivalents. However, the company has about $261 million annually in negative free cash flow. That means the company will almost fully deplete its cash reserves in another year unless it improves its free cash flow or raises additional cash.
In short, fuboTV remains a highly speculative pick in a highly competitive sector. Investors would be wise to tread carefully with the volatile stock.
Dollar General
Another company that is facing strong headwinds is Dollar General (DG -0.41%). Indeed, the company's shares have declined 53% year to date, making Dollar General one of the S&P 500's worst performers.
Part of the problem is competition. Dollar General is a down-market retailer that appeals to low-income consumers. However, given the increasing convenience and affordability of e-commerce shopping services like Amazon, brick-and-mortar retailer Dollar General's moat may be failing. In light of this possibility, Dollar General's rising inventories are all the more concerning. High inventory levels must eventually be reduced -- often at a loss.
Data source: YCharts
The company's total inventory now stands at $7.5 billion -- nearly double its $4 billion total back in 2019. In addition, the company faces strong headwinds from rising labor costs, inflation, and theft.
Finally, perhaps Dollar General's greatest weakness is potential market saturation. The company operates more than 19,000 stores in the U.S. alone. That's more than McDonald's (13,400 U.S. locations) or Starbucks (15,800 U.S. locations).
At any rate, given these numerous challenges, investors should remain cautious over whether Dollar General is a name worth owning for the long term.
