2023 Investing Preparation: Stocks That Shouldn't Be in Any Portfolios

In today's Masters Series, originally from the August 12 issue of the TradeSmith Daily e-letter, Mike reveals a few stocks that you should keep away from your portfolio as we approach 2023... explains why we could see another massive wave of sell-offs soon... and details the traits you should look for in a company when considering buying opportunities... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Master Series] Editor's note: Don't sabotage your portfolio... With sky-high inflation weighing on the stock market, most investors have been reluctant to put their money to work this year. But some folks have been loading up their portfolio with stocks that seemingly have high upside potential in hopes of turning a massive profit as we near the end of this volatile year. Mike Burnick, senior analyst of our corporate affiliate TradeSmith, believes this strategy has caused many investors to buy stocks that they shouldn't have anywhere near their portfolio. In today's Masters Series, originally from the August 12 issue of the TradeSmith Daily e-letter, Mike reveals a few stocks that you should keep away from your portfolio as we approach 2023... explains why we could see another massive wave of sell-offs soon... and details the traits you should look for in a company when considering buying opportunities... --------------------------------------------------------------- 2023 Investing Preparation: Stocks That Shouldn't Be in Any Portfolios By Mike Burnick, senior analyst, TradeSmith When a stock isn't living up to your hopes, it can be difficult to let go. You see, as investors, we get caught up in our emotions and become attached to certain positions. That's why it's crucial for you to stick to your game plan. And that's especially critical in volatile times... With 2023 almost upon us, I'm sure there are stocks just like that lurking in your portfolio right now... stocks that seemed like "lottery tickets" and lured you in with high dividend yields and solid balance sheets... No matter the reasoning, you don't want to get caught hanging on too long. That's why it's critical to prepare yourself for the shock that will come with selling off these stocks. Because just as important as knowing what to buy is knowing what to avoid and get rid of. So today, I'm going to share the first three stocks that shouldn't be anywhere near your portfolio in 2023. Stocks That Shouldn't Be in Any Portfolios, No. 1: AMC Entertainment (AMC) If you're a retiree who jumped into AMC just to see how the meme-stock mania would play out, kick it out of your portfolio as soon as possible. Movie theaters were already seeing a decline in ticket sales before the pandemic, as there are more options than ever to watch something through streaming services and premium channels. After all, if I wanted to see Jerry & Marge Go Large in theaters this summer, I could have burned through gas getting to the theater, gone around in circles in the parking lot to find a decent spot, spent $15 on a bag of popcorn and a drink just for myself, and then hoped I wouldn't have someone sitting behind me who wanted to talk during the whole movie. Or... I could spend $49.99 for a one-year subscription to Paramount+ and wait only 45 days after the movie's initial release to watch it from the comfort of my own home. So while moviegoing habits have already been changing, the COVID-19 lockdowns sent the decline in ticket sales into overdrive. AMC's financials alone would make me stay away from this stock, as "good news" for the company is when it loses less money than it did a year ago. In the first quarter of 2022, AMC reported a loss of $337 million, which was good news compared with the $567 million it lost one year earlier. It then followed that with another loss of $121 million in the second quarter, which, again, was better than the $344 million it lost in the second quarter of 2021. The sour cherry on top was that AMC Entertainment reported negative free cash flow of $134.8 million. After paying off operating expenses and capital expenditures, AMC doesn't have money left over to start chipping away at its debt of $5.5 billion. But to add even more reasons to boot this company from a retiree's portfolio, AMC is performing gimmicks like selling preferred shares of itself under the ticker symbol APE, a nod to meme-stock investors. It also purchased a $27.9 million stake in Hycroft Mining (HYMC), a gold miner that is beleaguered by its own heavy debt load, that also experienced a near brush with bankruptcy, and that adds no fundamental value to AMC. To keep your golden years golden and not lose sleep over a company that will just lose you money, make sure AMC is nowhere near your portfolio. --------------------------------------------------------------- Recommended Link: # [Warning: Prepare Now for 'Red October']( A "perfect storm" has already rocked stocks, bonds, commodities, currencies, and futures. But history tells us that the worst is actually dead ahead... and that the most brutal volatility of 2022 to date could kick off this month. Before the "month of market crashes" takes hold, [here's our No. 1 recommendation to prepare](. --------------------------------------------------------------- Stocks That Shouldn't Be in Any Portfolios, No. 2: Whirlpool (WHR) Whirlpool is known for its Whirlpool and KitchenAid brands, which offer appliances such as refrigerators, washers and dryers, and microwaves. It's not the most exciting business in the world, but those products bring in a lot of money: Whirlpool reported $22 billion in sales in 2021, a company record. The company currently has a nice-sized dividend yield of 5.19% and has made shareholder-friendly moves, approving $2 billion in February 2022 for stock buybacks on top of the $1.5 billion still available in the buyback program at the end of 2021. On the surface, this would seem to be a good company to own during economic turmoil, as people will always need appliances to make meals and do laundry. So why would I label this a problem company that you need to get rid of as soon as possible? The biggest problem is the nature of purchasing appliances. Yes, everyone needs a refrigerator. But it's not a purchase that's going to be made every year, as the products Whirlpool sells tend to last decades: - Average lifespan of a washing machine – 10 to 13 years - Average lifespan of a refrigerator – 10 to 20 years - Average lifespan of an oven – 15 to 20 years What helps fuel new purchases is high demand for new homes, as everything from dishwashers to clothes dryers needs to be installed. Also, folks selling their homes may replace old appliances to make their house more attractive to potential buyers. If you've been following the housing market, you know that demand has cooled and is bordering now on "freezing." With 30-year mortgage rates bouncing around between 6.5% and 6.8%, people who previously wanted to buy a home are being priced out and forced to sit on the sidelines. The National Association of Realtors ("NAR") expects 5.19 million homes to be sold in 2022, which is down 15.2% from 6.12 million sales in 2021. The NAR also expects things to get even worse, projecting 4.82 million sales for 2023, which would place home sales at their lowest number since 2012. And the cracks are already starting to show for Whirlpool. The company projected in April that 2022 net sales would grow between 2% and 3% from 2021 totals. In July, it had to revise that forecast, suggesting revenue will drop by 6% from 2021 totals. As of this writing, WHR is down nearly 40% this year, and I expect anyone who keeps this stock in their portfolio to feel even more pain ahead. Stocks That Shouldn't Be in Any Portfolios, No. 3: Tractor Supply (TSCO) When you hear the words "retail stores," images of Walmart (WMT) or Target (TGT) may immediately enter your mind, but there's another big retailer out there that has even more stores than Target: Tractor Supply. Stretching across most of the country, Tractor Supply boasts 2,016 stores in 49 states, while Target has 1,938 stores in 50 states. Tractor Supply serves a more niche client base, focusing on ranchers and hobby farmers. The company says "customers find everything they need to maintain their farms, ranches, homes, and animals" at its stores, including lawn and garden tools, fencing, chicken coops, animal feed, work clothing, and much more. But that niche market hasn't meant a lack of revenue. Before and after the pandemic, the company has increased how much money it brings in each and every year. Year Revenue % Increase From Previous Year 2019 $8.35 billion 5.57% 2020 $10.62 billion 27.16% 2021 $12.73 billion 19.87% Most recently, Tractor Supply had a strong second quarter, reporting that net sales increased 8.4% year over year from $3.6 billion to $3.9 billion. It also made the shareholder-friendly move of repurchasing $188.2 million worth of stock, and it rewards shareholders with a 1.9% dividend yield. With all the positive results, this stock may seem like one you'd want to own rather than avoid, but again, we're looking at issues lurking under the surface that will hurt the company's results moving forward... evaporating your hard-earned money. Again, even though we can't make an apples-to-apples comparison between Tractor Supply and Walmart or Target, they are all still retailers dealing with similar issues, such as higher transportation and labor costs. In February, the company was already looking at ways to cut costs, which interestingly included hiring more people to its financial analysis team to figure out how to save money. In early 2021, Tractor Supply Chief Financial Officer Kurt Barton told the Wall Street Journal that the company expected costs for goods and transportation to increase by 2% to 3% that year. The costs increased by 9% during the fourth quarter. And the company still doesn't seem to have a game plan for addressing the issue. In TSCO's latest investor presentation, it said that "significant product cost inflation pressures and higher transportation costs" cut into gross margin in the second quarter. The company can only pass on so much of those costs to consumers, and it can't keep bringing up inflation and transportation costs as issues. It needs to find a workaround. Revenue for the year is on pace to exceed 2021 numbers, but the revenue growth isn't going to keep up with the blistering percentage increases from the past two years. Based on updated 2022 financial guidance, TSCO net sales are on pace to increase as much as 10.37% from 2021 to 2022. That won't be anywhere close to the 27.16% increase from 2019 to 2020, or the 19.87% increase from 2020 to 2021. TSCO is already down 16% this year, so make sure it's not anywhere near your portfolio to avoid the further pain that likely lies ahead. Good investing, Mike Burnick --------------------------------------------------------------- Editor's note: Mike believes you don't have to wait for the stock market to bounce back in order to start raking in gains... You see, commodities have been suffering recently amid today's bear market. But according to Mike's TradeSmith Screener tool, a commodity supercycle could be forming right now... and savvy investors who see the whole picture will be able to make a lot of money. [Click here to learn more](. --------------------------------------------------------------- Recommended Link: # [Mysterious Alerts Signal Major Market Shift]( They predicted the COVID-19 crash... the 2022 bear market... and now they say something even bigger is around the corner. How do these strange alerts work? What massive event is about to take place? And most important, how can you prepare? 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