7 Stocks First-Time Investors Should Avoid

A first-time investor might not grasp the risks associated with buying stocks.

 

Going to a stock exchange and putting money in the market is one of the most potentially profitable decisions you can make. However, it’s also among the riskiest things you can do.

Any time you bet money on something, there is an inherent risk. But it’s especially risky to invest in the stock market because stocks — no matter if they are blue chip stocks or penny stocks — are volatile. Even the savviest investors cannot make the right purchases every time.

For a first-time investor, it’s especially difficult to make good stock picks. Often, you see a stock with plenty of upside and decide to invest. Sometimes this works. But the stock might plummet instead. Then, you are left scratching your head, wondering why such an appealing stock didn’t pan out.

Before you make a purchase, take into account every aspect of the stock. These seven stocks seem appealing, but should be avoided by first-time investors, and anyone else who doesn’t know any better.

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1. Chesapeake Energy (CHK)

Oklahoma-based petroleum and gas company Chesapeake Energy once was a fairly stable stock, with a five-year high of more than $30 in 2014. It hasn’t had such luck since, falling below $2 early in 2016. Since then, it’s been on the rise. Although the stock is nowhere close to where it once was, it recently has been above $6.

To an outsider looking in, this might appear to be a stock on its way back up. However, certain red flags suggest the stock might not be done falling. Declining volumes, poor asset quality and upcoming liabilities might keep the stock from advancing to where it once was. Perhaps it will even drop down below where it was earlier in the year.

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2. Endo International (ENDP)

Endo International is another stock that once was strong, but since has plummeted. Although Endo stock prices were once up around $90, the pharmaceutical company reached a low point when the stock price fell under $13. And it seems that all signs point toward more bad days ahead for the stock.

The company has cut 740 jobs, or 12 percent of its workforce. However, that won’t be enough to turn the stock around, especially when you consider the difficulty Endo likely will have getting a good deal on a merger or acquisition. It’s possible Endo can turn things around. But unless something changes, the company isn’t a very appealing stock. Nor is it a wise investment for anyone to make.

Related: 9 Safe Stocks for First-Time Investors

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3. Xerox (XRX)

Xerox specializes in document technology products and business services. The stock has woefully underperformed in an industry that is thriving. Xerox has seen negative earnings in each of the past five years, and it’s not expected to get much better in the future. Its growth is projected at 3 percent each year, a far cry from the 17.2 percent growth projected for the industry as a whole.

Xerox does offer an appealing 3 percent dividend yield. But considering the company’s slow rate of growth and the inherent risk in investing in an underperforming company, it’s probably not worth the risk to put your money in Xerox.

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4. Symantec (SYMC)

California-based technology company Symantec is one of the most volatile stocks on the market today. Almost every month, the company is either up or down by a fairly significant margin. It’s difficult to tell how long any given upward or downward trend will continue. Writing at Seeking Alpha, analyst Bert Hochfield says Symantec has a recent track record of “disappointing investors time and time again.”

For an experienced investor, volatility might not be a problem. But many first-time investors will be discouraged by an always-changing stock. If you are an investor who wants to make money each day — instead of waiting for an overall positive return over the course of a year or two — Symantec might not be for you.

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5. General Electric (GE)

General Electric is a conglomerate that covers many different industries, including power, oil and gas, aviation and travel. Its upper management can be criticized for a history of misusing shareholder capital.

Investment research firm New Constructs has pointed out that in 2007 — when the markets were high — GE bought back $12.3 billion in company shares. In 2009, when the markets were down, GE sold back $600 million worth of shares. Such moves go against conventional wisdom, where a company buys back stock when the markets are low and sells it back when the markets are high.

Despite this, GE hasn’t been a bad stock the past few years, offering a profit of more than 20 percent in 2012, 2013 and 2015. But the stock is still significantly lagging the S&P 500. Over the past decade, GE has had a total return of just 32 percent, compared to a 107 percent return for the S&P 500 during that time.

Related: 20 Dumbest Moves First-Time Investors Make

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6. TripAdvisor (TRIP)

TripAdvisor has seen decreased profits and a falling stock lately. That’s largely due to an increase in mobile traffic, leading to an increase in overhead expenditures and a decrease in profit. As a result, the company has suffered a fairly significant loss in earnings.

In addition, TripAdvisor — which provides travel accommodations and vacation packages — is in a competitive industry. It’s getting harder for the company to keep a solid grip on the leading spot in the industry.

TripAdvisor has also seen a fairly significant loss in earnings recently. In an article posted at Seeking Alpha, the analyst group Leptailurus Research writes that TripAdvisor’s revenues have “little room to grow.”

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7. The Andersons (ANDE)

The Andersons is an Ohio-based agriculture company involved in the grain, ethanol, plant nutrient, rail-car leasing, cob and turf industries. The Andersons’ stock isn’t a strong investment, however.

Many factors influence the agriculture industry, including a high level of competition, volatile oil prices and adverse weather conditions. These factors, along with the international business problem of Chinese import restrictions, combine to project negative earnings for The Andersons, going against the positive earnings projected for the agriculture industry as a whole.

Read: 11 Best Apps for Timid First-Time Investors