There comes a time when you look at the stock market and say, I need to take a step back. There are times to be all in, and times where you might not want to be in at all. Today, I am not recommending that you avoid the market completely, but am here to tell you about five particular names to stay away from. When I say stay away, I'm not just saying don't buy them. I'm also staying don't short them either. I understand that you sometimes have to take some risk to make money, but there is a difference between taking a small risk and a big one. These companies are big risks currently, so just stay away completely for now.
Facebook (FB):
Yes, I am insisting that you avoid this one, at least until we get the first quarterly earnings report. I don't think the average investor understands the complete fundamentals behind this one, and that is a very dangerous thing in this market. Also, we have been hearing a number of extremely wide opinions from analysts and professionals. Some are saying this stock is worth close to $50, while I heard more than one opinion today that it is worth $10 or less. With the name at $32 currently, that means there is plenty of room in either direction for it to move. Once we get an earnings report, or perhaps two, and we also get the underwriter's actual research reports on the name (they have to wait 40 days to publish, that's the rule), we can then start analyzing this name further. Until then, don't try to play it, and I certainly won't be.
Patriot Coal Corporation (PCX):
In case you haven't heard about this one lately, I'll give you a quick summary. Patriot Coal, like many others in the sector, has been extremely beaten down. The 52-week high is about $25, and just three weeks ago we were close to $6. On Tuesday, the company plunged to $1.36 at its low (from a previous close of $3.36), as fears of bankruptcy increased throughout the trading day. The company issued a statement Tuesday afternoon updating everyone on their refinancing, which only spurred more questions. Shares rebounded a bit to $2.66 at Wednesday's close, but are still well below where they were just a few days ago. This is a very small company (market cap of $244 million), and is in deep financial trouble. This stock could double in a very short time, or it could go bankrupt in a matter of days. This is one roller coaster ride you do not want to get on.
Research in Motion (RIMM):
This one is a very controversial one, and I'll start by admitting I am a noted bear on the stock. I have a very good feeling that we are going to see single digits soon. However, every month or two, when shares get low enough, we seem to get some sort of a fluke pop. In January, it was another round of buyout rumors, and guess what, the company still hasn't been bought out. The next time it jumped was after what really was a terrible earnings report. But the stock popped higher on that news. This company is about a month away from reporting earnings, and that is going to be a crucial report. However, I think there is going to be a decent size move before then, I just can't pin the exact direction, and that scares me.
JP Morgan (JPM):
I wasn't a big fan of any financial name to begin with earlier this year, especially with things in Europe the way they are. But this trading loss is a very curious situation, and I don't think anyone (maybe even those inside the company) know how it will all shake out. The company also stopped their share buyback plan for the moment. That worries me too. However, JP Morgan is in the "too big to fail" camp, so I would be deathly scared to short it here. Until we get more clarity on the situation, avoid the name. It might seem like a bargain, but if the markets plunge on troubles in Europe, it could be at $30 before long. It could also get back to $40 soon if things clear up. At the moment, I just wouldn't put my money near it. I'd rather watch and see what develops over the next month or two.
Dendreon (DNDN):
This name was on my list of stocks to collapse this year, and it has so far. This speculative biotech play has been one of the biggest movers over the past few years. It goes way up, and it goes way down, and in short time periods too. On Wednesday, an analyst put a $5 price target on the name, citing competition concerns. This stock could easily hit $5 in a day, but it could also be at $15 in a day on good news. Sales of the company's main drug, Provenge, have been doing well, but the company is still losing tons of money, and that's never good. This one is not for the faint of heart, and is one stock I probably will never try to play, in either direction.
Conclusion:
Yes, as I stated before, I understand that you sometimes have to take some risk to make money. But there is a difference between taking a risk, and just blatantly gambling. With these five names, I think you are talking about the latter. Now, ignoring options for the moment, each of these names has the potential to make some very nice returns in a short time period, but you need to know which direction to play. At some point, you have to realize when the risk is just too much. Sure, there are ways you could play these names with options, but I'm not recommending that at the moment, because you could be adding even more risk. There are plenty of safer names out there at the moment, so why not be in them? With the added volatility we have seen lately, these are 5 names that I would just avoid for now, and we can come back to them in another month or two when things settle down and there is more clarity on each.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
