10 Stocks to Stay Far Away From This Year

2021 has gotten off to a promising start for investors with major indexes setting all-time highs in February, and optimism mounting over the economic reopening expected by the second half of the year.

However, after a blistering run over the last year, valuations look stretched. And some stocks may be due for a pullback, especially as interest rates are starting to rise, beckoning investors out of inflated growth stocks and into safer assets like bonds and dividend-paying stocks.

While the economy is on the mend, over the last year we’ve seen that the stock market is a different animal, and there isn’t always a correlation between the two. With that in mind, here are 10 stocks best avoided in 2021.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

AMC Entertainment (NYSE: AMC), the world’s largest movie theater chain, has gotten attention this year as one of the “meme stocks” pumped up by traders on Reddit, and the company will benefit from the economic reopening. However, the business’s fundamentals are horrendous, and even a surge in box office demand won’t correct that.

As the company has scraped by to survive the pandemic, it has significantly diluted shareholders, expanding its share count by a factor of four. That means the company will have to be four times as profitable as it was prepandemic in order to deliver the same value for shareholders. Additionally, its debt burden near $5 billion was unsustainable before the crisis, and it’s been forced to take on new debt at interest rates as high as 15%. That will make a return to profitability much more difficult.

ALSO READ: 3 Risky Investments That Could Cost You a Fortune

Tesla wannabe Nikola (NASDAQ: NKLA) was a market darling early in its publicly traded history, but those dreams quickly fell apart when founder Trevor Milton was forced out after accusations of fraud and revelations that he had claimed a prototype was functional when it was not.

Nikola still has no actual products to speak of and seems to be benefiting mostly from the bubble in electric vehicle stocks. In the wake of a short-seller attack, the company lost funding from General Motors and BP, and it also scrapped its highly anticipated electric pickup, the Nikola Badger.

Despite those woes, the company is still valued at $8 billion, meaning the stock could still fall significantly if it encounters more challenges, which seems likely in what has become a crowded, overvalued industry.

Probably no traditional publicly traded company has become more associated with Bitcoin than MicroStrategy (NYSE: MSTR), a software company that has essentially pivoted to Bitcoin laundering, selling bonds to finance the purchase of the cryptocurrency. The company just sold $1.05 billion in convertible bonds to buy 20,000 tokens, essentially tying its market value to the value of Bitcoin. That strategy is obviously risky as the value of the business will plunge if Bitcoin tumbles, which is certainly a possibility after its boom over the recent months.

The stock is already off nearly 50% from its recent peak as Bitcoin and growth stocks have pulled back over the last week. For investors looking for exposure to Bitcoin, you’re better off buying the token itself than putting your money on a company whose core business is struggling and which has become even more volatile than the cryptocurrency itself.

Another stock that’s caught fire on Reddit recently is Sundial Growers (NASDAQ: SNDL), a marijuana grower that trades in penny stock range. A combination of a low share price and exposure to the cannabis industry seemed to attract traders on the WallStreetBets forum to the stock.

Like most marijuana growers, Sundial is unprofitable and has been rapidly diluting shareholders to raise funds. In February, the company sold 175 million new shares and issued 98 million warrants, significantly diluting investors following similar dilutions in recent months. Arguably, the company is smart to take advantage of the elevated price, but the dilution means that even if it can travel a narrow path to profitability, shareholders aren’t going to get much benefit.

ALSO READ: The 3 Biggest Mistakes Marijuana Stock Investors Are Making

Watch and accessories maker Fossil (NYSE: FOSL) has actually seen its stock do well during the coronavirus pandemic as shares had plunged in recent years, and it’s now seen as a turnaround play after cutting costs by enough to turn a profit. However, its performance has worsened during the pandemic with revenue falling by double digits, and the company is closely tied to the mall ecosystem, which has been hit hard by the coronavirus pandemic.

While some traffic will come back after the crisis, key partners like Macy’s are closing stores, and the company faces competition from the likes of Apple in watches as demand has shifted from traditional timepieces to smartwatches. Despite a valiant turnaround effort, Fossil looks like a poor bet.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Kraft Heinz (NYSE: KHC) has been a pandemic winner, benefiting from increased demand for packaged foods in supermarkets and riding a boom in grocery sales as consumers seek out convenience foods like its trademark mac and cheese.

However, consumer demand is inevitably going to shift when it’s safe to travel again and spending pivots to services like travel, entertainment, and restaurants.

Those headwinds don’t seem to be factored into the company’s current price, and Kraft is still carrying a $28 billion debt burden, making it difficult for it to invest in growth by acquiring faster-growing brands, as much of the company as made up of aging brands like Jell-O. That also puts it at risk of another asset impairment, especially considering the headwinds it’s likely to face later in the year.

XpresSpa Group (NASDAQ: XSPA) has been a favorite of day traders during the pandemic as the airport spa operator was forced to pivot to providing COVID-19 testing facilities when its core business basically became inoperable. That move initially elicited cheers from investors last spring as the stock rallied, but it is since pulled back.

With the rollout of vaccines accelerating, it now seems like the efforts to build out testing facilities will no longer be necessary. While it may seem like good news that XpresSpa can go back to its usual business of airport spa treatments, that business was struggling before the pandemic.

Its revenue declined in 2019, and it finished the year with less than $50 million in revenue and more than $20 million in losses. There’s little value proposition for investors coming out of the pandemic.

ALSO READ: Forget Sundial and GameStop: Buy These Game-Changing Stocks Right Now

Like XpresSpa, Genius Brands (NYSE: GNUS) also got some attention early in the pandemic, as Arnold Schwarzenegger became an investor in the company and agreed to costar in one of its cartoons. There were even rumors that Disney would take a stake in the company, or acquire it, but that never happened. Genius Brands has drifted along since then, but the prospects for the company look dimmer in 2021 as the streaming boom will fade with the end of the pandemic, and hopes for a buyout for the company will disappear with it.

The company has brought in less than $1 million in revenue and has significantly diluted shareholders over the last year in its attempts to grow. Even if management was able to grow the business and turn profitable, the company has over 200 million shares outstanding, making significant per-share profits highly unlikely.

DoorDash (NASDAQ: DASH) was one of several successful IPOs to come on the market in recent months. But after blistering growth during the pandemic, the company showed it was mortal as it guided to only modest growth in gross order volume for the year and a decline in adjusted EBITDA as the company anticipates a normalization in demand starting in the second quarter.

DoorDash has long-term growth potential in delivery, and some even see it potentially challenging Amazon for delivery of everyday items, but its lofty valuation combined with the headwinds it’s facing from the reopening make it look like a bad bet this year. The stock is still up about 50% from its IPO price, a sign that it could still fall some more.

The belle of the Reddit ball is the last stock on a list of names that are best avoided. GameStop (NYSE: GME) shares just experienced their second round of skyrocketing gains in just a month, but the first one didn’t end well, and this one isn’t likely to, either.

While an epic short squeeze drove the first rally, there didn’t seem to be any news event the second time around other than the departure of GameStop’s CFO, which is typically not a positive sign for a company.

As a business, GameStop is struggling, closing down stores as its video-game rental model is being disrupted by digital platforms. While there is a case for its turnaround, the decline of the brick-and-mortar business and its elevated valuation give it significant downside risk.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

With the economic reopening expected later this year and rising bond rates already pressuring stocks, 2021 is not an easy year to predict in the stock market. Will reopening play trump pandemic winners? Will value stocks finally beat growth? Nobody knows for sure.

At times like these, it’s best to invest in stocks that have shown they’re capable of outperforming in any kind of market. Staying away from penny stocks, meme stocks, overvalued recovery plays, and declining consumer stocks is a good start for beating the market in 2021.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman owns shares of Amazon and Walt Disney. The Motley Fool owns shares of and recommends Amazon, Apple, Tesla, and Walt Disney. The Motley Fool recommends Bitcoin and MicroStrategy and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool has a disclosure policy.