It’s often easier for me to list the stocks I’d steer clear of rather than the ones I’d recommend, especially since I primarily invest in exchange-traded funds (ETFs).
However, there are a few specific stocks that are currently waving major red flags. For beginners in particular, it’s crucial to know which stocks might be risky or unstable—essentially, the ones that could be considered sinking ships.
In this article, I’ll highlight a stock that I believe is best avoided in 2024 due to its concerning fundamentals. Alongside these, I’ll share one stock that stands out as a solid choice that I personally plan to buy and hold forever.
A used video game pawn shop
Do you have fond memories of GameStop (NYSE: GME)? I certainly don’t — I still remember feeling ripped off for my used Xbox 360 games when I was a teenager.
Despite its controversial history, GameStop is still hanging on. Following the infamous 2021 short squeeze, now-chief executive officer Ryan Cohen used the opportunity to dilute shareholders — affectionately known as “the apes” — to raise a war chest of cash that has kept the company afloat.
Since taking the reins, Cohen has aggressively cut costs by closing stores and reducing employee benefits while desperately searching for a new business angle. Unfortunately, all attempted pivots have flopped.
Their NFT marketplace? Closed. Initiatives to transform GameStop into an e-commerce powerhouse through distribution centres? Failed. Playr, its platform for Web 3.0 gaming? Kaput.
Despite these setbacks, the stock recently surged over 60%, with no significant news to justify the rise. This surge can likely be attributed to GameStop’s very active, some might say cult-like, group of shareholders who continue to buy shares and patronize the stores in a show of support.
Funnily enough, its prophet, “DeepF***ingValue,” or “DFV,” recently liked some movie on Twitter and tweeted a few memes, and the apes believe it’s a sign that another “Mother of All Short Squeezes” or “MOASS” is just around the corner.
I think it’s a total “nothingburger” but expect heavy volatility. I also wouldn’t be surprised if Ryan Cohen dilutes the apes by selling shares at these clearly overvalued prices to further bolster GameStop’s cash pile. Maybe he can turn it into a holding company in the future, who knows.
However, from a fundamentals perspective, GameStop is a stock I’d 100% avoid. The company struggles with negative free cash flow, declining revenues, a niche market, an outdated brick-and-mortar sales model, and, according to its employee forum on Reddit, poor morale.
What I would buy instead
I have a deep appreciation for The Coca-Cola Company (NYSE: KO), a cornerstone in my (and Warren Buffett’s) investment portfolio.
Since its inception in 1886, Coca-Cola has become a global icon, and there’s a good chance you’ve recently enjoyed one of its many products. It’s the kind of stock I buy regularly, and I would eagerly increase my holdings if market conditions were to dip significantly.
Coca-Cola stands out as one of the most shareholder-friendly companies I’ve encountered. With a management team committed to maintaining robust profit and operating margins and a return on equity consistently in the double digits, it’s a powerhouse of financial health.
Then there’s the amazing dividend — a reliable 3.10% yield at present, backed by an impressive history of 62 years of consecutive growth. Who doesn’t love getting paid to own a piece of a quality company?
However, it’s important to note that quality like this doesn’t come cheap. Coca-Cola is rarely undervalued, and with a forward price-to-earnings ratio of 22.22, the earnings yield stands at about 4.5%. Ideally, I’d like to see this rise above the current 10-year Treasury yield, also at 4.5%, to consider it a screaming buy.
But since timing the market is notoriously challenging, I’m not waiting around. I’m continuously buying shares of Coca-Cola, enjoying both the dividends and the great taste of its beverages along the way.
