Shares of which companies are best avoided if you don't want to lose money?
Most people consider investing money in company shares as one of the best and safest investment options.
It seems there is nothing easier than buying shares and then regularly receiving dividends, and even the security itself gradually increases in price.
But it's not for nothing that stock market broker are full of warnings: Investing in the stock market is associated with risks.
It would seem that there could be no danger, since the stock market is growing steadily and over the past 10 years, the stock index S&P 500 has grown by +240%.
But if you carefully analyze the companies that make up the S&P 500 index , it turns out that the giants that make it up cannot possibly cause losses to their investors.
In fact, if you had bought the companies that were included in the index 10 years ago, the result would have been like this:
| № | Company | Ticker | Decline over 10 years | Main reasons |
|---|---|---|---|---|
| 1 | Kraft Heinz | KHC | −73,2% | Declining sales, weak growth of well-known brands, high debt load and large write-downs of assets. |
| 2 | PG&E | PCG | −72,6% | California wildfire losses, legal settlements, bankruptcy and the need for major investments in the power grid. |
| 3 | Campbell's | CPB | −65,6% | Declining demand for traditional products, weak sales growth, inflationary pressure and high competition from store-owned brands. |
| 4 | Viatris | VTRS | −63,1% | Falling generic drug prices, weak revenue growth, debt, and the complicated history of Mylan's merger with a Pfizer unit. |
| 5 | Molson Coors | TAP | −60,8% | Declining consumption of mass-market beer, rising popularity of other drinks, high competition and slow sales growth. |
Note: The share price change shown is approximate and does not include dividends received. Viatris's performance is partly due to the merger and restructuring of the company.
So, if you had invested $10,000 in Kraft Heinz stock, it would be worth only $2,680 today.
And history contains examples of even greater declines, when companies fell in value by tens of times, completely ruining their investors.
For this reason, professional investors prefer to diversify their portfolios or even buy only indices that consist of hundreds of companies, thereby ensuring diversification.
But if you still prefer to build your own portfolio, it would be a good idea to know which stocks are best avoided.
Stocks you shouldn't buy
Don't rush into buying shares just because they've fallen sharply. A low price often reflects real business problems rather than a profitable opportunity.
Companies that have an increased risk are those that:
- revenue and profit have been declining for several years;
- the debt burden is growing;
- free cash flow remains negative;
- new shares are issued regularly;
- dividends are being cut;
- the company is losing customers and market share;
The combination of several factors is particularly dangerous: falling sales, high debt, weak cash flow, and a lack of clear growth prospects.
Such stocks may look cheap, but in practice they often turn out to be value traps—the price continues to decline as the business deteriorates.
