13 Risky Stocks That Could Crumble in 2021

Author: Rachel Warren | October 27, 2020

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Not all risk is bad

Risk is an inevitable part of life. Now more than ever before, this reality is particularly evident when it comes to investing in the stock market. The level of risk attributable to an investor’s portfolio will usually depend on a range of factors, including their own individual philosophy and the sector makeup of their basket of stocks.

Ideally, an investment portfolio isn’t concentrated too heavily on any one sector and features an array of stocks that present different proportions of risk. It’s important to remember that a high-risk stock doesn’t automatically translate to a high-reward investment. Certain risky stocks may be best avoided altogether.

If you’re searching for stocks to buy and hold for the long haul, these 13 risky buys may not be worth the trouble.

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1. Norwegian Cruise Lines

Among the numerous industries that have been assailed by crippling headwinds during the pandemic, the travel sector is one of the first that comes to mind. Cruise line stocks have had a particularly brutal year in the face of widespread travel restrictions and extended lockdowns. Shares of Norwegian Cruise Lines (NYSE: NCLH) have plummeted by more than 71% from the stock’s January trading price.

On Oct. 5, management announced another wave of global cruise cancellations extending through the end of November. During the second quarter of this year, the company experienced a nearly $17 million decline in revenue as the result of ongoing cruise cancellations. Although Norwegian Cruise Lines closed the quarter with $2.3 billion in cash and cash equivalents on its balance sheet, its $10.3 billion debt position is concerning given that its profitability for the foreseeable future remains one big question mark.

With the likely prospect that travel habits won’t resume to prepandemic normalcy for a couple of years at least, along with fears that cruise ships can become petri dishes for the coronavirus, stocks in this sector won’t be out of the woods anytime soon.

ALSO READ: These Are the 10 Worst-Performing Stocks in 2020

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2. Aurora Cannabis

The cannabis industry has always had its share of troubles in light of mixed legalization, and the pandemic certainly isn’t doing the sector any favors. While a few cannabis companies have managed to remain above the fray, Aurora Cannabis (NYSE: ACB) hasn’t been one of them. The stock is down about 80% year to date. One year ago, you could purchase a single share of the company for around $40. Today, with a share price hovering around $5, Aurora Cannabis looks close to scraping the bottom.

Although the company reduced its debt load in the final quarter of fiscal 2020, its total net revenue was down by 5%. Management doesn’t even expect the company’s fiscal Q1 2021 revenue to match its fourth-quarter earnings. Growing competition in the Canadian cannabis market is another headwind that the company is facing independent of the COVID-19 pandemic.

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3. American Airlines

Airlines have struggled immensely as travel patterns have shrunk to just a fraction of prepandemic levels. Although these stocks will likely recover over time, companies like American Airlines (NASDAQ: AAL) are on shaky ground. Shares of the company have lost over 56% of their value since January.

American Airlines reported a net loss of $2.1 billion in the second quarter, while its total operating revenue was down a painful 86.4% compared with the same three-month period in 2019. In the company’s second-quarter earnings release, management stated, “American expects its summer 2021 long-haul international capacity to be down 25% versus 2019 and also plans to exit 19 international routes from six hubs. These changes will allow the airline to reset its international network for future growth as demand returns.” As things stand now, future growth may be a long way off yet.

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4. Tilray

Shares of Canada-based pharmaceutical and marijuana company Tilray (NASDAQ: TLRY) have fallen by more than 60% this year. Although the company reported positive revenue growth of 10% in the quarter ended on June 30, its revenue was still down 3.2% compared with the previous quarter. Tilray’s net losses for the three-month period totaled $81.7 million. This net loss figure represented a $45.4 million increase from the second quarter of last year.

Tilray’s current debt-to-cash position also leaves much to be desired. At the close of the second quarter, its total outstanding liabilities came to $724.2 million, while management reported just $137.2 million in cash and cash equivalents on the company’s balance sheet.

ALSO READ: The 1 Stock I'd Buy Right Now

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5. Delta Air Lines

Delta Air Lines (NYSE: DAL) has also been hit extremely hard by the pandemic. Shares of the company have been trading for around $30 each since June. At the beginning of this year before the market plunged, the stock was trading at roughly $60.

When the company released its third-quarter results on Oct. 13, its balance sheet revealed that Delta is hemorrhaging financially. Management reported pre-tax losses to the tune of $6.9 billion in the quarter. Delta’s total adjusted revenue dropped 79%, with the company burning an average of $24 million every day during the three-month period.

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.

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6. AMC Entertainment

In the age of stay-at-home orders, closures of nonessential businesses, and prolonged delays of production and film releases (not to mention the boom of streaming services), movie theater chains simply can’t keep up. During the first half of 2020, AMC Entertainment (NYSE: AMC) reported a 64.5% revenue decline compared with the same period in 2019. In the second quarter, which ended on June 30, the company’s revenue plunged to an astronomical low -- down 98.7% year over year.

AMC submitted a report to the Securities and Exchange Commission (SEC) on Oct. 14 in which it stated that the company may completely burn through its cash stores before the year is out or early next year. In a particularly bleak note for the company’s investors, shares promptly plunged by more than 20% on news of the SEC filing.

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7. Nikola

Electric car company Nikola (NASDAQ: NKLA) made headlines with its $12 billion initial public offering (IPO) this past June. Unfortunately, its subsequent vehicle battery scandal, a string of investor lawsuits, and a weak balance sheet are leading to an equally monumental downfall. The company’s market capitalization has since plunged to $8.4 billion, while shares have declined by roughly 74% since June.

Even more damaging, management reported second-quarter net losses of $86.6 million, while its total revenue was just $36,000.

ALSO READ: Best Renewable Energy Stocks for 2020

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8. Cronos Group

Another cannabis stock that has had a particularly volatile year, Cronos Group (NASDAQ: CRON) is swimming in a serious financial mire. In its second-quarter earnings release, the company reported nearly $35 million in operating losses along with a $3.1 million inventory writedown. Taking these losses into account, the company was left with just 1% in gross profit margin for the entire quarter.

With Cronos Group’s retail locations shuttering temporarily and reduced demand for its products due to the COVID-19 pandemic, the company also found itself grappling with stifling impairment charges -- $35 million in the U.S. alone during the second quarter.

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9. ExxonMobil

Oil and gas stocks have been pummeled during the coronavirus pandemic, and ExxonMobil (NYSE: XOM) is no exception. The company currently pays a dividend of just under 11%, but its share price has been nosediving and doesn’t appear to be nearing recovery anytime in the near future. Shares of ExxonMobil have dropped about 53% year to date.

The company reported a $1.1 billion loss in Q2, with oil-equivalent production seeing a 7% year-over-year decline. During the first half of 2020, ExxonMobil’s revenue was down 33% from the same period in 2019. Management is working diligently to reduce the company’s outlay, but the stock is facing too many near-term headwinds at the moment to make it a good buy.

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10. J.C. Penney

J.C. Penney (OTC: JCPN.Q) wasn’t in great shape heading into 2020, and the situation has only worsened as the pandemic drags on. During the three-month period ending on Aug. 1, J.C. Penney reported its revenue down 44% year over year.

The company filed for bankruptcy in May. While hope may be on the horizon if its proposed sale to Brookfield Property Partners and Simon Property Group goes through, this risky stock isn’t likely to add much value to investors’ portfolios anytime soon.

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.

Previous

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11. Marriott International

As the world’s largest hotel chain, Marriott International (NASDAQ: MAR) has served as a prime example of the severe impact the pandemic has had on the hotel industry. The stock is down 37% from its January trading price. Marriott’s substantial net loss of $234 million in the second quarter of 2020 was worsened by $77 million of bad debt expenses and impairment charges attributed to the coronavirus. The company’s global revenue per available room dropped by more than 84% in the quarter.

Management has made it clear that the company isn’t expecting much in terms of near-term future growth. Chief Executive Officer and President Arne M. Sorenson noted in the company’s Q2 earnings release, “Our pipeline remains strong with approximately 510,000 rooms ... with the restrictions related to the pandemic slowing construction timelines, there is uncertainty surrounding future rooms growth. Given current trends, we estimate rooms could grow by 2 to 3 percent, net, for the full year.”

ALSO READ: Don't Buy a Stock Unless You Can Answer These 3 Questions

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12. Nordstrom

Another household name in the world of retail, and like other department store chains, Nordstrom (NYSE: JWN) has faced the excruciating financial impact of lockdowns due to its nonessential business status. The company also lacks the robust e-commerce presence that has helped other retailers like Walmart or Target resist excess volatility from the pandemic.

Shares of Nordstrom have hit an all-time low, down 69% year to date. Although the company pays a hefty dividend that yields close to 12%, its financial situation is concerning.

Nordstrom posted net losses equivalent to $255 million in the second quarter, while its pre-tax losses came to a staggering $370 million. Full-price net sales were down 58% in the quarter, and digital sales were down 5%. The company’s total second-quarter revenue represented a 52% decline compared with the same period in 2019. Nordstrom had just $991 million in cash and cash equivalents at the end of the second quarter, compared with its long-term debt of $3.3 billion.

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13. Coty

Shares of Coty (NYSE: COTY), a multinational company that owns more than 70 different beauty-focused brands, have fallen by more than 70% from January. Although the beauty industry isn’t the first that comes to mind when considering sectors most affected by the pandemic, this particular market has been dealt a few blows of its own this year.

According to a report by management consulting firm McKinsey & Company, worldwide revenue in the beauty sector could shrink by as much as 30 percent this year. McKinsey & Company’s report also noted that, “With the closure of premium beauty-product outlets because of COVID-19, approximately 30 percent of the beauty-industry market was shut down.”

Coty was in a shaky financial situation before COVID-19 hit (it reported its net revenues down by 8% in fiscal 2019), but matters have only worsened since the pandemic began. The company’s net revenue was down 22% in fiscal 2020. It lost more than $1 billion sales during the fiscal year, mostly as a result of the pandemic. Although management anticipates positive profits in fiscal 2021, there are still too many red flags to make Coty a winning investment choice right now.

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Investing in the coronavirus stock market

The economic fallout from the ongoing pandemic is lifting the lid on the vulnerabilities of certain companies struggling to weather the drastic peaks and valleys of the coronavirus stock market. As a second wave of COVID-19 cases surges globally and the talks over a second round of stimulus packages continue to stall, investors looking to close out the final quarter of the year strong must be pickier than ever when buying stocks.

There’s no way to completely eliminate risk from your investment portfolio, but it’s important to hedge your bets with surefire winners and make any high-risk stocks you own a less substantial slice of your portfolio.

Rachel Warren has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines and Marriott International. The Motley Fool has a disclosure policy.

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