10 Stocks to Avoid
Given the market uncertainty, we'd walk away from these highly overvalued no-moat names.
|Editor's note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.|
During these volatile times, we've provided investors with plenty of stock ideas to investigate further and possibly buy on weakness. We've looked at high-quality stocks of firms that are run by exceptional management teams. We've examined wide-moat companies with low uncertainty, suggesting that these names could be solid choices in rocky times. And we've uncovered cheap stocks with fortress balance sheets that have sturdy financial foundations that can withstand market shocks.
Yes, today investors have plenty of opportunities from which to choose: Three fourths of our U.S. equity coverage universe is undervalued as of this writing (with Morningstar Ratings of 4 or 5 stars). However, some stocks are way overpriced by our metrics.
Today, we're taking a look at some of these pricey names. Specifically, we've isolated stocks trading at 1- and 2-star levels that lack economic moats and that have fair value uncertainty ratings of high or greater.
Why did we choose these data points to screen on? Companies without moats are less likely to be able to stay ahead of their moaty competitors over time--they don't have significant competitive advantages over their peers. Further, stocks with high uncertainty ratings tend to have less sales predictability, more operating and/or financial leverage, and greater exposure to contingent events than other companies. In a turbulent and uncertain economic and market environment, these are the types of stocks to avoid.
Ten stocks made the list. Not surprisingly, several stocks on the list--including Zoom Video Communications (ZM), Slack Technologies (WORK), and Teladoc Health (TDOC)--have gotten attention as plays on our current at-home lifestyles. Despite their neat fit in this trend, we think their prices are overextended.
Susan Dziubinski does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.