Have you ever wondered what stocks you could buy that could utterly destroy your entire portfolio?
Most likely, you haven’t. After all, it’s human nature to think about how to get ahead, not how to lose.
Yet according to investing legend Charlie Munger, thinking about how to cause disaster is a great way to avoid it. One of his famous maxims was “just tell me where I’ll die so I won’t go there.” Another–borrowed from mathematician Carl Jacobi–was “invert, always invert!”
Munger’s point was that by studying the wrong thing to do, you can often figure out the right thing to. With that in mind, here are two questionable stocks that could wreck a $100,000 portfolio.
Source: Getty Images
AtkinsRéalis
AktinsRéalis (TSX: ATRL), formerly known as SNC Lavalin, is a Canadian contractor that is known for building energy infrastructure, bridges, metros, and more. The company’s portfolio is impressive, and it has been performing well lately. Over the last 12 months, its revenue grew 15% and its earning grew 802%! The company is also relatively profitable, with a 23% net margin and a 4.9% free cash flow margin. The problems here are twofold:
- ATRL has an extremely spotty ethical track record, having been involved in numerous controversies, including ones involving bribery and corruption. One, the SNC-Lavalin affair, was a major scandal for the Trudeau administration a few years back.
- The company’s free cash flow [FCF] is consistently dramatically lower than its reported earnings, often being just 1/10th of earnings. FCF is a pretty stringent measure, but ATRL’s operating income usually lags its reported earnings too. So basically, this company isn’t bringing in the level of cash that its reported earnings imply. That’s a major red flag for poor earnings quality.
Lightspeed Commerce
Lightspeed Commerce (TSX: LSPD) is a Canadian point-of-sale company that was once a market darling but has fallen on hard times. It primarily sells point-of-sale terminals, which is an extremely competitive business. Lightspeed is nowhere near as strong as the industry’s market leader, Block Inc. It’s up against many other competitors in the space, too. Lightspeed also offers an e-commerce shopping app similar to Shopify’s, as a form of diversification. However, its e-commerce offering has seen nowhere near the level of adoption that Shopify’s has. So Lightspeed is far beyond the competition in its two main verticals. Its stock is optically cheap, trading at 0.89 times earnings, but it appears this name is cheap for a reason.
Foolish bottom line
Will AtkinsRéalis and Lightspeed necessarily ruin a $100,000 portfolio? No. While both companies show many red flags, both have things going for them as well. For example, both companies are growing their revenues at a steady clip. However, they are competitively fairly weak and not doing much to get investors excited. Perhaps AtkinsRéalis or Lightspeed could pull a rabbit out of a hat and become something worth noting, but I wouldn’t bet the house on it. There are many better options than these two on the TSX today.
