Avoid These 2 Stocks In 2016

With valuations stretched beyond rational belief, these two stocks have little room to run up but plenty to crash down. These are two stocks your portfolio would be better off avoiding in 2016.

I have long thought avoiding stocks that might implode is just as important for portfolio performance as finding attractive equities to put in your portfolio. A position cratering by 75% or 80% will blow a hole in your portfolio, just ask anyone who heavily weighted internet stocks circa early 2000. A more recent example is the complete collapse of just about every small and mid-tier energy exploration company as well as about every mining stock over the past 12-18 months.

Unfortunately, just about every article one encounters on every financial website is about what stocks or sectors of the market to buy with very few pieces on what equities and areas of the market to avoid. I put out a 10-page report late in 2014 on which three stocks to avoid in 2015. I was dead wrong on Amazon (AMZN) as investors continue to be willing to forgo anything that looks like earnings or free cash flow for market share gains and revenue increases. As we go to press, the shares go for just over 350 times this year’s likely profits.

Tesla Motors (TSLA) has mostly been dead money for the year even with several significant gyrations and is almost exactly where it was a year ago. The last stock I had on that three stock list shows just how devastating a plunge that can happen when a one-time market darling loses its momentum. That stock was GoPro (GPRO) and you can see from the chart below, holding this equity through 2015 has proven to be immensely painful this year. My condolences to any who have held on to this niche hardware maker. At least you still have time to sell and take a tax loss by the end of the year to ease some of the pain of holding this stinker in 2015.

I will leave Amazon alone this year as the company has now been successful for over a decade telling investors that profits will be in the future as it continues to make strategic “investments.” Investing in Amazon just does not make sense to fundamental investors such as myself. However, I will continue to refuse to put it in my own portfolio as it does not meet my investment criteria.