One of the biggest challenges when it comes to investing is identifying doomed stocks within your portfolio and getting rid of them. For long-term investors, this can be even more challenging because they choose stocks to buy and hold for a long time horizon. To ensure you don’t hold on to stocks beyond their expiration date, it’s worth conducting an annual review of your portfolio to review the investment case for the businesses worthy of your investment.
This year, there are some red flags to consider. Perhaps the most pressing item on the agenda is the cost of living crisis. While inflation is no longer running upwards, it hasn’t come tumbling down either. That means people are stuck with higher costs and less disposable income. It’s important that the companies you hold are prepared to weather a year of tightened pursestrings—either with a product people are willing to keep paying for, or a compelling strategy to protect margins.
The other big thing to consider when identifying stocks to sell this year is debt. Interest rates may not be rising any longer, but many are expecting they’ll remain higher for some time. That means debt is much more expensive than it once was. With that in mind, companies with massive debt piles are at risk.
Finally, investors should trust management. The next year is likely to be a difficult one between elections in the United States, geopolitical conflicts and the threat of a recession. A management team that’s able to navigate through all of that is rare. Clarity and transparency will be key to success over the next year, so it’s worth considering whether you think a company’s C-suite is up to the task.
Tesla (NASDAQ: TSLA)
With so much focus on the transition to electric vehicles, it might seem odd to see Tesla (NASDAQ: TSLA) on a list of doomed stocks. But the electric car maker has become exceedingly expensive for what you’re getting. Investors should consider whether they think its nosebleed valuation is realistic any longer.
There are two main questions surrounding Tesla stock right no—can margins recover and is Elon Musk able to lead the firm in the right direction. Big price cuts have dented margins at a time when spending on AI is critical to advancing the group’s technology. The result is an ongoing debate about whether or not Tesla will be able produce its cars as profitably as investors had been expecting.
The second issue landing the company on the stocks to sell list is Elon Musk’s bedside manner. While he has plenty of die-hard fans, his controversial behaviour and outlandish remarks often toe the line between eccentric and unhinged. When it comes to managing a company through an undoubtedly difficult period, investors might be concerned that his attention is divided between his EV empire and having his ego stroked on X.
There are certainly long-term glimmers of hope for Meta (NASDAQ: META), but it looks like more pain than gain in the year ahead, making this one of the doomed stocks for 2024. Meta has seen its valuation shoot upwards this year as the group managed to right the ship after disastrous news that advertisers were jumping overboard. In the near-term, that’s about as good as it’s going to get for Meta shareholders.
The coming year could see advertising dollars dry-up somewhat thanks to the gloomy macroeconomic backdrop. And as we’ve seen over the past few years with rival platforms popping up here and there, consumers’ attention is fickle. Ultimately Meta’s grand ambitions to create a metaverse are exciting, but the group’s had to put its plans there somewhat on the back-burner in order to get its main house in order. This was the right plan, but its still unclear where exactly the social media giant will go next. That lack of clarity is what lands Meta on the doomed stocks list in 2024.
Pepsi (NASDAQ: PEP)
Brand power is a powerful life raft in times of economic trouble, but Pepsi’s (NASDAQ: PEP) may not be enough to keep it off the doomed stocks list in the coming year. Notably, the group’s most recent results showed resilience in the face of the cost of living crisis, but a closer look under the hood suggests there could be a bumpy road ahead.
Both food and beverage volumes appear to be slowing, and this could make it difficult for the group to continue passing its rising costs on to consumers. As people feel the pinch more and more, they’ll be making choices to slide down the value chain where they can— that could mean abandoning some of Pepsi’s brand-name snack foods in favour of something cheaper. Plus, the group’s got a sizeable debt pile, which makes it tougher to manoeuvre as long as interest rates remain high.
On the date of publication, Marie Brodbeck did not hold (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.