One secret to making money in the markets is to keep holding winners and exit the losers as soon as a red flag appears. Investors need to keep aside biases and ego if the target is to make wealth from the markets. I have seen individuals averaging down and ultimately exiting with a big loss. I prefer to exit soon if the story has red flats. Further, I like to average-up on stories that continue to build stronger. All this because I am discussing the meme stocks to sell if they are still in the portfolio.
Meme stocks came into prominence in 2021 and dozens of names skyrocketed. Some were ideas backed by fundamentals and others were purely speculative. This column discusses three businesses that continue to struggle.
Therefore, for investors who have no exposure, these are the meme stocks to avoid. And for investors who hold them, it’s best to exit before further wealth erosion. Let’s discuss the reasons to be bearish.
Lucid Group (LCID)
Year to date (YTD), Lucid Group (NASDAQ:LCID) has declined by almost 30%, indicating significant negative sentiment for the company. Notably, the short interest in the stock remains high at 26%.
An obvious reason for LCID stock trending lower is continued disappointment on the production and deliveries front. Additionally, cash burn is significant, making it unlikely that Lucid will be cash flow positive before 2027. And that is only if the company can survive this extended period of cash burn. For now, there are prospects of multiple rounds of equity dilution or leveraging for survival.
Investors might be pinning hopes of the potential launch of Lucid Gravity SUV by December 2024. However, that’s not a big enough catalyst for triggering a turnaround. Also, it remains to be seen if Lucid can commence mass deliveries on schedule.
Novavax (NVAX)
Novavax (NASDAQ:NVAX) had its moment during the rally in 2021 and traded above $300. However, as the broad-based euphoria fizzled, NVAX stock plunged. Also, markets realized that Novavax is a laggard when it comes to the race for the Covid-19 vaccine. As Pfizer (NYSE:PFE) and AstraZeneca (NASDAQ:AZN) dominated the vaccine market, NVAX stock plunged further.
With no turnaround in sight, NVAX stock may continue to disappoint. Currently, Novavax has two approved candidates and a thin pipeline of vaccines. Although the Covid-19 vaccine is authorized, the markets understand the revenue potential is insignificant.
Further, the seasonal influenza vaccine is in Phase two of trials. A combination of Covid-19 and seasonal influenza vaccine is also in Phase two of trials. If Novavax must expand its pipeline, it would involve big investment in research and development. This would imply equity dilution. Even if their pipeline expansion continues, robust revenue visibility might be years away.
GameStop (GME)
In 2021, GameStop’s (NYSE:GME) surge marked the beginning of the meme stock euphoria. However, the stock remains in a downtrend with little hope from a fundamental perspective. I
In the first nine months of 2023, GameStop reported net sales of $3.5 billion. For the same period, the company reported an operating loss of $90 million. Further distressing, sales have declined YOY, and key margins remain depressed.
However, during those first nine months of 2023, hardware sales increased as a percentage of total sales. Conversely, software and collectible sales declined. Therefore, margin improvement is not visible. While GameStop has a strong cash buffer of $1.2 billion, it’s isn’t reason enough to buy the stock.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.