While the concept of market success glamorizes taking shots on potential winners, a holistically positive plan can’t ignore stocks to cut losses on. In other words, it doesn’t really matter if you pick a handful of moonshots if the other losses in your portfolio end up sinking your net holdings into the red. At some point, we all have to call it quits on former investments.
And that’s one of the reasons why I encourage investors not to assign emotionally charged language regarding the trading process. For you to win in the market, somebody must be willing to take the opposite side of the wager. Eventually, that someone could be you when the underlying security no longer justifies the risk. Therefore, you should treat the worst performing stocks to sell agnostically.
Ultimately, exiting out of losers and holding onto winners is about protecting your interests first. Believe me, nobody’s losing any sleep regarding your opinions about equities (unless you’re as influential as Warren Buffett). With that, sell these money-losing stocks before they do too much damage.
Tupperware Brands (TUP)
Investment resource Gurufocus identified Tupperware Brands (NYSE:TUP) as one of the companies facing a higher-than-average risk of financial distress. Frankly, it’s not surprising. According to Good Morning America, Tupperware itself warned it could soon be out of business. Among multiple factors, management cited challenging internal and external business economics. Therefore, it’s an easy case for stocks to cut losses on.
To be fair, TUP carries a significant risk for those seeking to short the enterprise. According to Fintel, TUP’s short interest stands at 24.29% of its float. Also, its off-exchange short volume ratio is 60.07%. And per Fintel’s proprietary Short Squeeze Score, TUP comes in at 84.73 out of 100, meaning a much higher chance of a short squeeze materializing.
Nevertheless, TUP makes a case for worst performing stocks to sell because of operational and stability concerns. First, its three-year revenue growth rate sits at 4.6% below zero. Its net margin is 1.36% below breakeven. For stability, it features a very modest cash-to-debt ratio of 0.16. And its Altman Z-Score lands at 1.72, indicating higher-than-normal bankruptcy risk. Thus, TUP’s one of the stocks to avoid for loss cutting.
Another sketchy example of stocks to cut losses on, Cuentas (NASDAQ:CUEN) features a business people can root for. A diverse technology firm seeking to both building affordable housing projects and expand wireless and financial connectivity for everyday Americans, Cuentas isn’t short on wholesome ambitions. Unfortunately, the market doesn’t really care about ambitions unless it’s tied to a credible framework. That’s just not the case for CUEN.
Sure, since the beginning of this year, CUEN nearly doubled in market value. However, in the trailing one-year period, it lost more than 44% of equity value. And in the past 60 months, it’s down nearly 99%. Not surprisingly, Gurufocus labels Cuentas a possible value trap. For arguably most investors, CUEN’s one of the stocks to dump now.
Per the investment resource, Cuentas suffers from seven red flags. Among them, inventory buildup and a severe decline in operating margin (over the past five years) poses major concerns. Further, Cuentas’ three-year revenue growth rate dropped to 38.8% below zero. And its EBITDA growth rate during the same period is 50.7% below parity.
Kaixin Auto (KXIN)
While it’s always difficult to tell people to sell these money-losing stocks, Kaixin Auto (NASDAQ:KXIN) makes the argument easier simply because of its poor performance. Billed as China’s leading new auto retail platform for luxury used cars and imported new cars, Kaixin originally seemed a compelling play on the country’s burgeoning consumer economy. Unfortunately, the narrative hasn’t worked out. In the trailing year, KXIN dropped over 71% of equity value.
To be sure, I’m aware that KXIN trades at 27 cents a pop. However, it runs the risk of collapsing altogether. For one thing, I see no evidence of speculative appeal. Per Fintel, KXIN’s short interest is only 0.07% (which is nothing). Also, in Fintel’s proprietary Short Squeeze Score, it clocks in at a lowly 35.11. Therefore, Kaixin makes a strong case for stocks to cut losses on.
Financially, I’m afraid the company suffers from messy financials. While its balance sheet offers some positive ratios, its Altman Z-Score sits at 8.23 below zero. This stat indicates extreme financial distress. Operationally, you’re looking at a three-year revenue growth rate of 12.5% below zero. Finally, its profit (operating and net) margins sit well into negative territory. Therefore, you should sell these money-losing stocks but especially KXIN.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.