The stock market has been gaining strength lately on hopes of lower interest rates and a soft landing for the economy in 2024. If that happens, stocks could be on a roll path to a great year. And investors might be tempted to look at some struggling stocks that should have been recovering long ago.
But in some cases, it might be best for investors to resist the temptation to take a chance on high-risk investments. Three stocks that crashed more than 40% last year and might still be too risky to invest in right now are Plug in the power (NASDAQ: CAP), Modern (NASDAQ: MRNA)And Lumen Technologies (NYSE:LUMN).
Here’s why you might want to consider staying away from these stocks.
1. Plug in the power
Plug Power is a company that investors hope will become a great green energy investment in the future. The company offers hydrogen-based solutions, but the problem is that while investing in green energy can offer attractive long-term opportunities, the company also needs to be there to take advantage of them. And this is by no means a certainty for Plug Power.
The company raised “going concern” concerns last year, meaning it is unsure it can survive another 12 months. The company says supply issues have created significant risks for its operations, making it likely it will have to issue more shares and dilute its investors in order to continue operating.
Over the past four quarters, the company has incurred operating losses totaling more than $889 million. Its operating cash flow during this period was also negative $1.2 billion. Meanwhile, the company has cash and short-term investments totaling less than $570 million.
There’s no shortage of warning signs here to suggest investors stay away from Plug Power. Even if you think hydrogen may be the long-term energy solution, that doesn’t mean Plug Power will be there to benefit from that growth. Given the company’s dire financial situation, investors would be better off looking for other growth stocks. Last year, Plug Power shares fell 64%.
2. Modern
Moderna, the COVID vaccine maker, doesn’t expect to have a good year in 2024. Management expects revenue to rise to about $4 billion as demand increases number of COVID vaccines is decreasing. What’s troubling is that these forecasts even include revenue from its respiratory syncytial virus vaccine. In 2022, Moderna reported revenue of just under $19 billion.
The company has other products in the works, but what concerns me is that it is focusing on areas where growth may be limited. It appears to be focused on COVID and flu vaccines, including a combination shot. But given all the competition with flu vaccines and COVID demand not being so strong lately, I’m not very optimistic that the company’s efforts will pay off.
He is working on a personalized cancer vaccine with Merck which has shown promising results, but this is an area in which failure rates have been historically high; businesses face an uphill battle.
Moderna has done little to diversify its business outside of COVID, and there may be too much reliance on COVID and flu revenue for this to be a good contrarian investment to take a chance on right away NOW. Although Moderna’s shares have fallen 45% in the last year, the stock still appears extremely overvalued with a market cap of over $40 billion.
3. Light technologies
Down 65% in 2023, Lumen Technologies was a terrible investment to own last year. Besides its depressed valuation, there simply isn’t much to attract investors to this stock these days. The telecommunications company carries significant long-term debt, which totaled $19.7 billion as of the most recent quarter (ended September 30, 2023). Poor financial results and the need to repay debt led the telecommunications company to suspend dividend payments in 2022.
The company is in the middle of a turnaround effort that involves reducing debt and starting to generate growth again, relying on its Quantum Fiber business to help. But this will involve investments and expenses to develop this activity. Early investors might anticipate that the dividend return could occur in 2027, when the company expects free cash flow to be between $300 million and $500 million. That’s still a far cry from the $1.7 billion in free cash flow reported in 2022.
Given Lumen’s uncertain path, investors are better off taking a wait-and-see approach with the stock, as there is still significant risk here.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool holds positions at and recommends Merck. The Motley Fool recommends Moderna. The Mad Motley has a disclosure policy.
3 Struggling Companies Investors Should Not Bet On This Year was originally published by The Motley Fool
