2 Stocks to Avoid in 2024

2 Stocks to Avoid in 2024

In the investing game, knowing which stocks not to buy is just as important as knowing which stocks to own. Two sectors that I find particularly weak are automobiles and airlines. These sectors face tough competition and low stock market valuations. Two companies in particular are lagging behind S&P500 (INDEXSNP: ^GSPC) with a good margin. They face significant obstacles in their business that they will need to overcome before their stocks can compete with the market as a whole.

1. Ford

I love cars as much as the next person, but car companies aren’t always the best investments. Actions of Ford Motor Company (NYSE:F) have underperformed the S&P 500 by about 53% over the past five years.

It’s easy to fall into the value trap with stocks like Ford, which trade at less than 13 times earnings. The problem is that auto stocks, except for the wild ride that is You’re here (NASDAQ:TSLA), rarely see their profit multiples exceed 10% or 10%. This means they must create remarkable financial growth for their stocks to achieve significant gains.

The headache for Ford this year is electric vehicles (EVs). It announced a $1.3 billion loss on its electric vehicle sales in the first quarter of the year.

It’s true: the future of the automobile is undermining Ford. Worse still, the headaches are likely to last until the end of the year. Management said it expects losses of $5 billion this year, measured by earnings before interest and taxes (EBIT) of its Model e cars, which are Ford’s line of electric vehicles.

It’s not that Ford hasn’t created good growth. Revenue increased by 16% in 2022 and 11.47% in 2023.

The problem is that investors don’t want to forget the calamity of the 2008 financial crisis and the subsequent bankruptcy of several major automakers. It has become clear over the past decade that investors have little intention of paying large premiums for the shares of major automakers. General Engines (NYSE:GM) trades at less than 6 times earnings; Toyota (NYSE:TM) trades at less than 10 times earnings.

Investors simply don’t seem comfortable paying high premiums for a sector so exposed to economic weakness. Whether it’s a traditional internal combustion engine or an electric vehicle, most of us will be less likely to buy a new car if the economy tanks. For this reason, investors are right to be cautious about auto stock valuations.

2. Spirit Airlines

Say that Spirit Airlines (NYSE: SAVE) had a rough year would be an understatement. Shares fell a painful 77% after the hoped-for merger with JetBlue (NASDAQ:JBLU) was blocked by regulators.

It was a pretty devastating blow to a company that had been bleeding cash for several quarters. Travel rebounded from the worst of the pandemic, but Spirit’s performance did not.

The budget airline has consistently lost hundreds of millions of dollars per year since 2020, despite having fairly decent revenue. Collectively, Spirit has lost $1.9 billion over the past four years, and 2024 is also looking disappointing.

The first quarter was off to a rough start, with operating revenue down 6.2% year over year and operating losses up 84.5% to $207.3 million. dollars. Spirit expects continued losses for the second quarter. Worse still, the airline expects around 70 planes to be out of service by 2025, leading to further operating cost issues.

Simply put, Spirit was too dependent on a buyout. It seems pretty clear that the airline is going to fight it alone. With JetBlue now out of the race and Spirit racking up some pretty significant debt that it will have to pay off, the risk is just too high to bet on this one.

Should you invest $1,000 in Ford Motor Company right now?

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David Butler has no position in any of the stocks mentioned. The Motley Fool Ranks and Recommends Tesla. The Motley Fool recommends General Motors and recommends the following options: Long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.

2 actions to avoid in 2024 was originally published by The Motley Fool

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