News
2 Consumer Stocks I Wouldn’t Touch with a 10-Foot Pole
The last 15 months have been a fantastic time to own stocks. For the last 15 years, if we’re really honest. In this most recent run, a boom in artificial intelligence (AI) and rising profits for technology companies have helped stock market indexes reach new highs multiple times in 2024.
Investors also seem keen to get back into betting on money-losing start-ups. In this way, the market looks eerily similar to 2021. While stocks may be up today, this is a dangerous time to buy growth stocks. Countless examples of so-called “hot” stocks in 2020 and 2021 are down 90% (or worse) today from their all-time highs. It is critical as an individual investor that you learn from recent history and be rational with your personal investment portfolio.
Here are two consumer stocks I wouldn’t touch with a 10-foot pole. Each has a major potential downside in the years to come.
1. Opendoor: flawed from the start
The first action on my list is Open door technologies (NASDAQ: OPEN). The start-up intends to use an online platform for buying and selling residential properties. It went public in 2020. Today, shares are 93% below historic highs. However, I think there will likely be more pain for Opendoor shareholders.
Why? First, Opendoor has never been profitable. In the last 12 months, it recorded negative net profit of US$283 million and gross profit of US$431 million. Revenue declined 62% year over year in the first quarter of 2024 as management scaled back operations to stay in business. Financials are abysmal, and with revenues going in the wrong direction, it’s hard to see how Opendoor will turn a profit anytime soon.
Buying and selling properties through an online portal was a flawed business model from the start. The jump in interest rates in 2022 has made this even more evident. While the friction in buying a home has been reduced by companies like Zillow, Opendoor is not solving any problems for consumers. It is also a capital intensive business that needs to be financed by debt. As Opendoor grows, it needs to add more real estate inventory to its balance sheet, which takes up a lot of its cash and makes it difficult to run the business.
It’s no surprise to see Opendoor’s book value per share drop 68% from all-time highs to $1.30. Book value per share tells investors the net worth of Opendoor’s balance sheet and is important for an asset-heavy business. What should scare investors is that Opendoor trades at a share price of $2.50, which is almost double its book value per share. A book value that continues to decline quarter after quarter.
The story continues
There are no redeeming qualities to Opendoor’s business model, even if interest rates start to fall again. Don’t make a pamphlet about this stock, even if it has a low price. There may be many more downsides ahead.
OPEN Net Income (TTM) Chart
2. Beyond meat: where is the growth?
The only company with a more troubled business than Opendoor might be Beyond meat (NASDAQ:BYND). The plant-based meat startup went public in 2019 during the craze for plant-based meat substitute companies. Investors were excited about these new technologies and what it could mean if these new foods could disrupt the traditional meat sector.
It turns out those dreams never came to fruition. Beyond Meat’s revenue has been falling for several years, with terrible margins to boot. Last quarter, revenue fell 18% year over year, while gross margins fell to a measly 4.9%. This means the company has to heavily discount its products and barely sells them above cost.
Not surprisingly, this has led to some poor profit numbers. Net income has been negative since 2020 and shares are down 96% from all-time highs. But there doesn’t appear to be any relief on the horizon. Research indicates that the popularity of fake meat products is declining among consumers, which could mean even more pain for Beyond Meat in the coming years.
No growth, terrible margins and bleak outlook for the industry. Beyond Meat is in a dire situation. Stay away from this stock.
Should you invest $1,000 in Beyond Meat now?
Before buying Beyond Meat stock, consider the following:
The Motley Fool Stock Advisor analyst team just identified what they believe is the 10 best stocks for investors to buy now… and Beyond Meat wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia I made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $566,624!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular analyst updates, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns May 13, 2024
Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Beyond Meat, Opendoor Technologies, and Zillow Group. The Motley Fool has a disclosure policy.
2 Consumer Stocks I Wouldn’t Touch with a 10-Foot Pole was originally published by The Motley Fool