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These 4 Stocks are Toxic for Your Portfolio

Hi guys. I’m Tim Melvin. Welcome back to A Better Way to Wealth. Now we spend a lot of time on A Better Way to Wealth talking about ways to manage your money for higher profits. We throw out a lot of stock ideas and things that we think you can buy right now, special situations that have an arbitrage feel that are going to do well, no matter what the market does. So we’ve just spent a lot of time talking about what the buy. But there are some things, folks, some stocks, they’re just what I call toxic. You don’t want to own them. Even if they go higher, it’s a mistake to own because the risk of owning these things is extraordinary. You know, if you’re risking a few bucks on the upside against the potential of a massive 60%, 70%, 80% decline on the downside, that’s a toxic situation.

(00:52):
So let’s throw out a few toxic stocks. These are stocks that you really need to avoid. If you should happen to own them, either sell them or put a stop in right now, you know, trailing stop up every night, ride it as far as it’ll go, but you want to get out when the decline starts, cause odds are it will be messy to say the least. Now first one up is GreenPower Motor Company, symbol here is GP. It’s a Canadian company that makes electric school buses and what a great idea electric school buses are. It’s going to be a lot easier. And if you get solar involved a lot less expensive to, to charge these things up, the buses don’t run at night, so you can just charge them overnight from a large charging station. So this is a really good idea and it’s going to be a pretty good market because I think eventually if nothing else, for political pressure the school districts all over the United States are gonna replace their systems with electric school buses that makes GreenPower Motor Company seem like just as fantastic idea. School buses!

(01:52):
You don’t seriously think they were the only ones that thought of electric school buses do you? The competition here is Navistar. Thomas Built Buses, which is a division of Diamond Trucking. So all of the existing school bus manufacturers got right in to the business as soon as it became obvious. And it was obvious to anybody that studied the situation for more than about two seconds that the school bus fleet of the United States was eventually going to be 100% renewable and probably electric. So the problem is cool idea, great story, very hypey stock. They got this thing up into the $20s after its IPO. It’s come back down to $13 and you still can’t own it. They have very little revenue. They are burning $6 million in cash in the last quarter. The first quarter of this year, they’ve only got $9 million left, which means they have to suddenly sell a ton of trucks or find some magic source of cash.

(02:53):
Like people dumb enough to lend them money or even dumber, to invest new equity into the company, not a bright future for this company. Fundamentals are deteriorating quarter by quarter by quarter. They’re selling a few buses here and there, but they’re up against established school bus companies with massive installed customer bases. And that’s just going to be a really tough market for them to crack into and become a serious competitor. Don’t think they have much of a future. You really do not want this stock in your portfolio. All right, next up Royal Caribbean Cruise Lines. Wow. What a tough run these guys have had since COVID hit their fleet sat idle for months and months and months, they couldn’t take the cruise ships out. The publicity around it was terrible. They got into a fight with the governor of Florida over vaccine passports. It’s just been terrible.

(03:50):
Now they do have a good part of their fleet back to sea, but guys, it’s not what it used to be. They’ve had to hire extra staff. They’ve had to pay up to get staff to work. Remember, those great buffets you used to hit up at midnight after you left the bar on the boat and you just rampaged through all the food… Gone. They have to have servers now, which limits the amount of hours of operations. I’m the prime cruise age, right? I’m 60 years old. I am the market. I don’t really like cruises, but I’m the market. My wife kinda likes them. So we go once every few years. I have no interest in getting on a boat until this thing has gone from pandemic to endemic, which means a lot like the flu and the common cold.

(04:30):
We’re not there yet. And I’m not the only one that feels that way. Fundamentals of this stock are deteriorating on a regular basis. They’re not getting better as fast as everybody had hoped that they would. And you know, you’ve still got to deal with the Delta variant. The cruise industry could come crashing right back to a zero close should the Delta variant continue to spread. Now, do I think Royal Caribbean’s going out of business? No. They’ve done a pretty good job of shoring up the balance sheet, making sure the finances work. I do think that the stock is going to go a lot lower. Even if I’m wrong. There’s not a lot of upside left in the stock. Maybe you could get another 10% or 15% if everything remains favorable because when we had the great reopening trade earlier in the summer, the stock shot up a lot higher than it had any real reason to go based on the fundamentals of the business.

(05:21):
The downside could be massive. Potential upside is very limited. So this is a stock that I have to consider too toxic to hold in your portfolio right now. Conditions change, we’ll change our mind because Royal Caribbean is a very well-run company. And I think when we get to the other side of this, cruise ship stocks have pulled back again. I think you might see the private equity industry start to get real interested in the cruise line business at lower prices. We’ll see how it all plays out, but for now, if you own it, put a trailing stop up every night to keep it near the close. So you don’t get caught when this thing inevitably rolls over and heads down. Now, my next stock up is Chegg symbol CHGG, and I’m just going to put it on the table…

(06:11):
I recommended this stock aggressively about five years ago. The stock has since gone up about 12 times at today’s price. About 18 times the multiple that we paid back then for this educational technology company. I love educational technology. Okay? And all this stuff, the companies in the business, I watched these like a hawk, because if we can fix the problems, we can use technology and artificial intelligence to fix our education system, we solve most of the problems that United States is currently facing. I truly believe that I’ve followed a space like a hawk. In a bad market, you would see me snapping these things up like crazy. However, Chegg has gone from $6 to well over $70 in a five-year period of time. It really blasted off last year. Reaching, you know, 18 times almost $120 a share when schools were completely closed down all over the country.

(07:09):
All right, kids are back in schools a little bit. For the most part around the United States, as you know, classroom learning is back. It’s not going to devastate Chegg, but it is going to slow down the growth of the company a bit. And the stock has simply moved up to too high a multiple of sales and of earnings. I like the company. I love the technology. I think the future of it is bright. The stock is just too expensive. It’s starting to roll over and underperformed the S&P 500. They missed the earnings estimates one time, you got a 40% to 50% loser on your hands. So avoid the stock for now. It’s mildly toxic. You don’t want it in the portfolio. Fundamentals are deteriorating a little bit. Now that kids are back in school and online is not as big a part of the everyday activity of the educational system.

(07:59):
And the stock is starting to underperform the S&P 500. Toxic combination. Either use a stop or get the get the stock out of your portfolio for now. And don’t buy it again until I tell you to buy it. That day will come, and I’ll be aggressive about it, because like I say, if we can use education and technology to fix the education system, we fix an enormous amount of the problems that we face here in the United States. Ed tech is a big part of the solution to our future, but that doesn’t mean we can afford to pay too much for the companies that are in that business right now. Finally, AMC Entertainment. Oh boy. AMC has been a mean stock. It’s gone from $3 to close to $100 or some such, I don’t have the chart in front of me currently trading in the fifties.

(08:46):
Let’s just give props where do, okay. The CEO and his team here have done a brilliant job of keeping this company in business. Bankruptcy was very much in the air last summer with the stock trading down, you know, it was like around $3 a share. In fact, I even wrote, at that time, that’s probably worth buying a little bit. Cause if he, if his plans work, it was going to go to maybe $30. If it didn’t work, you lost three bucks. So it was a decent speculation. His plans better than worked. He got caught up in the meme stock thing, and they bowled that stock way up. And I don’t know who he sold the stock to maybe shorts that desperately needed stock to cover because of the short squeeze, but he did a big share off and they brought in a ton of cash.

(09:31):
So again, smart financing doing a lot of things, right. Guys, it’s not worth 50 bucks a share and an aggressive case. I think, you know, 30 bucks a share. If we go back here, if we look in December 2016, the company had a market cap of $3.7 billion. That’s the highest that it’s been over the last 10, 15 years. In December of 2019, the market cap had fallen to just $751 million as the company was kind of over levered and the movie business wasn’t really all that great. Yeah, it’s a $24 billion market cap today, eight times what it was worth at the best point in the history of the business over an extended period of time, I don’t really think so. The stock is worth, like I said, maybe given the fact that a lot of their competition is out of business, it’s worth maybe 30% of where the current stock price is… tops.

(10:29):
Maybe 15 bucks. Really toxic. When the Reddit guys get done playing with this thing and people quit making the foolish mistake of trying to short it and providing fodder and fuel for a short squeeze. The stock’s going to rapidly go back down into the teens. You want to play around with this mess, and you’ve got time to sit in front of your computer screen all day and watch the ebbs and flows of this stock then you have at it. If you don’t have that kind of time and you own the stock, put a stop in when it’s triggered, forget about it. Okay. If you don’t own it, don’t even get tempted. It’s worth $15 a share tops. It’s trading over $50. That’s toxic. That relationship is eventually going to be adjusted to the correct proportions. And if you own the stock, while that correction’s happening, you are going to get crushed.

(11:19):
So anyway, there’s four stocks right now for a combination of reasons are just too toxic to be in your portfolio. There’s the potential for not just a loss, but a massive loss in all four stocks. And at the current prices, the upside would appear to be very limited. So you’re not giving up a whole lot by getting out of these stocks. Four stocks too toxic. If you own them, sell them or put a stop in. If you don’t own them, then don’t buy them. So anyway, that my friends is A Better Way to Wealth. I’m Tim Melvin, and I will talk to you tomorrow.