Today, I want to give you a warning call for the year ahead.
No, I’ve not changed my opinion that the road to wealth is paved with tech.
Far from it.
When we spoke on Jan. 1, I struck an optimistic tone about our ability to make money on tech stocks in the New Year. And I reiterated that sentiment in my follow-up conversation with Money Map Executive Editor Bill Patalon on Jan. 4.
However, I do have one concern. With the sector in bear market territory of late, I expect to see Wall Street tout a number of stocks as great “turnaround” plays.
Here’s the thing. While that may be true in some cases, there are several stocks out there that I believe could be toxic to your portfolio.
In a choppy, news-driven market like we have right now, this is no time to take a flier with your hard-earned cash.
With that in mind, I want to reveal the four tech laggards I think you need to avoid in 2019…
Side-Step the Herd
Avoiding the Street’s hype machine is particularly important at a time like this, when we have seen a broad selloff. This is exactly the environment in which Wall Street will try to sell you dogs covered with fleas by slapping “turnaround” collars on them.
One way to avoid the hype machine is to allow the tech itself guide your decisions.
I’m talking about using artificial intelligence and super-computing methods to spot hidden trading patterns that are invisible to not just the human eye, but to other computerized trading platforms on the market. And my colleague, Money Morning’s renowned pattern trader Tom Gentile, has just developed exactly such a system.
The best part? You’ll only need five minutes of your time each trading day to take advantage of the opportunities Tom has lined up here.
Now, for the tech laggards to avoid in 2019.
Let’s take a look…
Tech Stock to Avoid No. 1: Tesla Inc. (Nasdaq:TSLA)
Make no mistake, Elon Musk is one of the brightest and most dynamic CEOs you’ll find. His technical vision, bold strokes, and ability to launch a brand new business in a very tough industry deserve great respect.
And if you’ve ever driven a Tesla car, you know just how special a product his firm can make.
But if you look at this firm’s stock chart, you can see a clear shift underway. Shares soared for four straight years, up until the summer of 2017. Since then, the bears and the bulls have been duking it out.
In the past year, this stock had 11 failed breakouts.
Nowadays, Tesla has become a choppy, news-driven stock. And that basically means retail investors should leave it to high-risk options traders who have the time and temperament for volatile issues.
My concern here is that the news around Tesla will only grow more fraught. This is a firm that likely ended 2018 with around $24.7 billion in debt. Trouble is, Tesla continues to see money fly out the door, and may be hard-pressed to service that debt.
Wall Street thinks Tesla bled around $250 million in free cash flow in 2018. And that figure may swell to $750 million by 2020.
As much as I admire Musk and his electric cars, the high debt and negative cash flow are big red flags. Stay away…
Tech Stock to Avoid No. 2: IBM Corp. (NYSE:IBM)
Over a year ago, I told you that this stock would be dead money in 2018. And that’s exactly what happened. Before the market sold off on Oct. 3, IBM was below break-even for the year, while the S&P was up 9.4%.
Yet shares are by no means a bargain as we head into 2019. The basic fact remains: in her six years she has served as CEO, Virginia M. Rometty has presided over a series of sales setbacks, even as she kept saying IBM is turning the corner.
Now, IBM is trying to jumpstart growth with a very costly acquisition. A few months back, IBM offered a stunning $34 billion for Red Hat Inc. (NYSE:RHT).
Readers of Nova-X Report know I’m a big fan of this open source software support firm. The firm has become a key player in the cloud.
In fact, we snagged a 68% gain with this stock, beating the S&P 500 by 682% in the time we owned shares.
But frankly, that $34 billion price tag – a 63% premium to Red Hat’s prior market value – looks awfully rich. Sure enough, IBM got hit with a downgrade on its bond ratings when the deal was announced, because the firm will have to borrow hefty sums to pay for it. Steer clear…
Tech Stock to Avoid No. 3: Toshiba Corp. (OTC:TOSBF)
This firm once drove a lot of innovation across a range of industries. Not anymore.
Instead, Toshiba has made a few, select bets. And unfortunately, they don’t promise much of a payoff.
Take the fact that Toshiba decided to become a major player in the American nuclear energy market, investing north of $6 billion. About a year ago, the firm had to sell off Westinghouse, its troubled nuclear unit. On top of that, the company had a $1.3 billion accounting scandal.
Toshiba has also focused a lot of its resources on computer chips, mostly in the area of memory chips. Trouble is, memory chipmakers face a very tough road ahead in 2019. Too much supply and not enough demand have led to weak pricing.
NAND flash memory contract prices, for example, fell about 10% in the third quarter, according to market research firm TrendForce. And prices dropped further throughout the fourth quarter.
This past spring, Toshiba announced new strategic plans to rebuild sales and profits. A close read of these plans suggests they’ll be hard to implement.
New CEO, Nobuaki Kurumatani, says his turnaround efforts will bear fruit within five years. Maybe so.
But for 2019, don’t look for any bright lights. Instead, make this a stock to avoid.
Tech Stock to Avoid No. 4: Windstream Holdings Inc. (Nasdaq:WIN)
This old-line telephone service provider used to be the darling of dividend players. Back in the summer of 2014, shares traded above $100, based on robust dividend payment streams.
Shares now trade for around $2.
And that juicy dividend? It hasn’t been in place since 2017, as the firm looks to conserve cash.
Right now, Windstream is doing what it can to make a better impression with investors by attending a wide range of conferences. So you can bet a few media outlets and Wall Street analysts will start touting it as a potential turnaround story.
Don’t believe the hype. Sure, Windstream is cutting costs at a fast pace. Yet that’s not of great help when sales continue to shrink, as more and more people ditch their landlines.
Which brings up my “Golden Rule of Turnarounds” – you can’t cut your way to growth.
Every quarter, Windstream must pay around $230 million in interest on its debt. At the end of the third quarter, this telecom firm had just $37 million in the bank.
And don’t let the stock’s cheap price fool you. This is a troubled company, and its stock should be avoided by everyone except the most risk-loving speculators.
Now then, the stock climbed more than 20% on Jan. 2, after the company announced an asset sale that will help it deal with its debt load. And it shot out to a 6% surge Monday morning.
Don’t let that rally fool you. Much of it has occurred because aggressive traders have had to cover their short positions.
If you own this stock, I suggest you sell into strength. But you should still avoid it in 2019. So let’s wait and see if the company turnaround really will work.
Which brings me to one of the most important points I’ll make here today: as we prepare to close the books on a tough year for stocks, it’s time to really pay attention to solid fundamentals.
That means finding best-of-breed firms in high growth tech sectors.
I’ve found this is the best way to really build your net worth.
And it’s been our mission here at Strategic Tech Investor since Day 1… to find the winning plays that put you on the road to financial freedom.
With the ability to pay for you children’s college education… or take that dream vacation to the islands you’ve always wanted.
Rest assured, we’ll be talking about dozens of them in the year ahead.
So, make sure that your 2019 tech Investment Action Plan includes dropping in on our twice-weekly chats.
And check back here on Friday, as I’ll putting the finishing touches on a piece that’ll look at three beaten-down, but primed to soar tech stocks for 2019.
Don’t miss it.