I’m usually a big fan of tech stocks. The tech sector enjoyed huge returns from 2016 to 2021, as seen by the tech-heavy Nasdaq composite’s gain of more than 200%. And even though the sector has been down since those heady days, I’m not ready to write off the entire sector. You have to know which tech stocks to avoid.
Because while there are still some attractive buys in the tech sector, there are also plenty of stinkers. Tech stocks fell throughout 2022 thanks to higher interest rates, rising inflation, supply chain issues and concerns about geopolitical instability.
And even today, there are headwinds. The Federal Reserve raised interest rates again for the 10th time in just over a year. Russia and Ukraine are still fighting, and there’s some anticipation that Kyiv is planning to launch a major offensive to take back its territory.
And some economists are still predicting a recession later this year, although Fed Chair Jerome Powell is slightly dovish.
So yes, it’s a challenging time to consider tech stocks. And while you can make a case to invest, it’s also essential to recognize the worst tech stocks to avoid the mistake of adding them to your portfolio.
The Portfolio Grader identified the following as tech stocks to sell.
| SQ | Block | $60.30 |
| XELA | Exela Technologies | $0.030 |
| MMAT | Meta Materials | $0.20 |
| INTC | Intel | $31.34 |
| HPQ | HP | $29.30 |
| MU | Micron Technology | $60.30 |
| WDC | Western Digital | $32.80 |
Block (SQ)
Block (NYSE:SQ) is a fintech company with digital platforms like Square and CashApp.
Once upon a time, it was a huge innovator, particularly when it created the little white dongles that small businesses and pop-ups could use to run credit cards just by attaching them to a smartphone or tablet.
Now? It’s just one fintech in a sea of competitors looking to get a piece of the B2C (business to consumer) and C2C (consumer to consumer) pie.
While it’s certainly possible that Block will see a pop in the stock price should it manage to top earnings expectations when it reports on May 4, I recommend that investors disregard whatever the Q1 report shows.
Allegations that Block is overstating user growth and glossing over user acquisition costs for its CashApp unit are of more significant concern.
When you throw in the competition from other well-heeled digital platforms and the company’s high valuation (35 times forward earnings), Block is a hard pass for me.
SQ stock has a “D” rating in the Portfolio Grader.
Exela Technologies (XELA)
Would you want to own a stock on the verge of delisting? Of course not. Exela Technologies (NASDAQ:XELA), a computing company that specializes in business automation, is trying to fend that off as we speak.
The company’s stock is around 3 cents per share and has been under $1 since August 2022, so Nasdaq is threatening to delist it. XELA is planning a special meeting to ask shareholders to approve a reverse stock split at a ridiculous margin of 1-for-100 or 1-for-200.
That doesn’t solve Exela’s problem, though. The company’s seeing falling revenue, is cutting workers and is more than $1 billion in debt. That’s unhealthy when the company has a market cap of only $41 million.
A reverse stock split is essentially rearranging chairs on the Titanic. XELA stock has an “F” rating in the Portfolio Grader.
Meta Materials (MMAT)
Meta Materials (NASDAQ:MMAT) is a struggling semiconductor company.
It develops and produces functional materials and nanocomposites, particularly in lithium battery materials. Its work develops materials that help prevent battery fires, for instance.
However, the company is losing far more money than it’s bringing in. The fourth quarter included revenues of $1.4 million and operating expenses of $24.8 million. The company posted a net earnings loss of $79.1 million for the entire year.
MMAT stock is down 84% this year, falling to less than 20 cents per share. It’s trying to raise money through a $25 million underwritten public offering of 83.33 million shares of common stock priced at 30 cents.
This is a stock to avoid. MMAT stock has a “D” rating in the Portfolio Grader.
Intel (INTC)
Intel (NYSE:INTC) is one of the best-known names in the semiconductor space, but the stock is having some issues these days.
Intel is notably losing market share to Advanced Micro Devices (NASDAQ:AMD), seeing its share sliced from 82% in 2018 to 62% in 2022. It also cut its dividend payout in February by 66%.
Earnings for the first quarter saw revenue fall by nearly 36% year-over-year to $11.7 billion. Its net loss was $2.8 billion, or 66 cents per share, the biggest quarterly loss in company history.
The company also posted a loss of 4 cents per share. A year ago, Intel had a net profit of $8.1 billion and $1.98 per share.
Those are difficult numbers to digest. It’s no wonder that INTC stock is down 32% in the last 12 months.
Intel is trying to turn things around, and it has an ambitious plan to turn its factories into foundries that can make chips for other companies, but that work will take time.Intel is targeting 2026 as a goal in which it will compete for high-profile work.
That’s too long to hold onto a stock that’s retrenching. INTC stock has an “F” rating in the Portfolio Grader.
HP (HPQ)
Formerly known as Hewlett-Packard, HP (NYSE:HPQ) makes personal computers, printers and printer supplies. It also works in the 3D printing space.
But it’s been a tough few months for HP, as global PC shipments dropped by more than 28% in the fourth quarter of 2022, followed by a drop of 29% in the first quarter of this year.
In the fiscal fourth quarter, HP’s sales fell by 11.2% overall, with notebook sales dropping by 26% and desktop sales falling by 3%.
The company’s fiscal first quarter of 2023 wasn’t any better. HPQ saw its revenue fall nearly 19% year over year to $13.83 billion, while analysts expected revenue of $14.17 billion. Its PC shipments dropped by 24% in the quarter.
The bottom line is that computer makers like HP are being hurt by weaker demand and too much inventory, a situation expected to continue potentially into the third quarter of the year, the Wall Street Journal reported.
I’m not saying that HP is a bad company, but as far as May goes, it’s a tech stock to avoid. HPQ has a “D” rating in the Portfolio Grader right now.
Micron Technology (MU)
Micron Technology (NASDAQ:MU) is another semiconductor stock that’s fallen on more challenging times.
As recently as January 2022, the stock was nearly $100 per share, but today it barely touches $60.
It’s also failing to gain market share. In fact, it is losing ground in the lucrative semiconductor space. Last year, Micron had a global market share of 4.6%. It hasn’t been over 5% since 2018, when it had a 6.3% market share.
Earnings for the company’s fiscal second quarter raised plenty of red flags. Revenue of $3.69 billion dropped 52% from a year ago and came in less than analysts’ expectation for $3.71 billion. The company lost $1.91 per share, while Wall Street expected an EPS loss of only 88 cents per share.
Micron’s being lapped by the competition, and nothing will change in May. MU stock has a “D” rating in the Portfolio Grader.
Western Digital (WDC)
Western Digital (NASDAQ:WDC) makes computer data storage devices, including hard drives, flash drives and enterprise storage platforms.
It’s suffering from the same headwinds as HP—bloated inventories and a drop in demand. Benchmark Analytics notes companies like Western Digital will be affected into 2024 by a decline in NAND flash drive pricing and high NAND inventory levels.
Western Digital reports first-quarter earnings in May, and Wall Street hopes for an improvement from its December report. The company then posted revenue of $3.11 billion, a fall of 35.7% year-over-year.
Also, note that Western Digital is reportedly talking to Kioxia Holdings about a deal that could see Western spin off its flash business. The talks seem in response to activist investor Elliott Management, which proposed last year that Western Digital split into two companies.
WDC stock is down 24% in the last three months, and I expect it to stay there for a while until inventories correct themselves. WDC stock has a “D” rating in the Portfolio Grader.
On the date of publication, Louis Navellier held MU. He did not hold (either directly or indirectly) any other positions in the securities mentioned in this article.
On the date of publication, the InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.