The Federal Reserve is set to make its next move shortly, and it could send a shock through the market. With already high interest rates, a sticky inflation problem and an uncertain economic outlook, many investors are taking a cautious approach for the rest of 2023.
And there should be particular concern about companies that were beneficiaries of the unique economic conditions from 2020-22 and are not nearly as well-positioned going forward. It’s time to remove these three stocks to avoid from your portfolio now before their situations get a whole lot worse.
Moderna (MRNA)
Biotech company Moderna (NASDAQ:MRNA) develops and sells vaccines. It aims to commercialize vaccines for a wide variety of diseases. However, to date, virtually all of its success has been tied to its COVID-19 offering.
There is an argument for owning some of the Covid pharma companies. Pfizer (NYSE:PFE), for example, is much larger and more profitable today than it was prior to the onset of the pandemic. And Pfizer has plenty of other drugs in other fields to keep its profits steady even as Covid revenues dry up.
For Moderna, however, it’s hard to see what the company’s next act will be. MRNA had virtually no revenues before the launch of its Covid vaccine, and shares traded for just $20 or so.
Now, its revenues have plunged from $19 billion in 2022 to just an estimated $7.2 billion this year. And revenues will almost certainly continue to slump as vaccine demand fades. Moderna is already unprofitable once again, and its losses should widen as revenues further decline. Unless Moderna comes up with another blockbuster vaccine in a different field, it’s hard to see how MRNA stock doesn’t collapse going forward.
Peloton Interactive (PTON)
Peloton Interactive (NASDAQ:PTON) was another pandemic-era winner that is now long past its prime.
It made all the sense in the world to buy expensive home bikes when gyms were closed. However, with the economy now open, the appeal of expensive home fitness equipment has markedly declined.
That’s especially true since Peloton relies on an expensive subscription-based model for delivering its exercise classes. With consumers developing subscription fatigue due to the vast number of monthly bill products, more niche products like Peloton are in danger.
Peloton stock sank in August following a product recall that led to a wave of customer subscription cancellations. And things went from bad to worse this week, with PTON stock hitting new 52-week lows after the disclosure that the firm’s chief financial officer (CFO) sold 10,215 shares of stock. It’s often wise to avoid stocks with insider selling.
The Gap (GPS)
Retailers also face heavy headwinds as 2024 approaches. High inflation, the resumption of student loan payments and a fading economic outlook will pressure consumer spending.
Clothing retailers like The Gap (NYSE:GPS) had a wonderful opportunity in 2021 and 2022. Folks went into the newly reopening world wanting to look their best. Consumers had money to spend at the time, buying discretionary goods at an accelerated clip.
Despite this, The Gap was not able to cash in. Revenues only marginally nudged upward from $16.6 billion in fiscal year 2019 to $16.7 billion in FY 2022. Revenues then declined to $15.6 billion in the already-completed FY 2023, and analysts see that plunging to just $14.7 billion in FY 2024. Despite a vigorous shopping environment and the ability to raise prices across the board, Gap watched its business shrink significantly. Recent earnings reports have been negative as well.
Gap has a chunky amount of long-term debt on its balance sheet, further limiting its options as it attempts to turn the business around. However, given the struggles of the mall shopping ecosystem overall, Gap faces a significant challenge going forward. The firm is currently paying a large 6.07% dividend yield. However, given Gap’s slumping profitability, don’t be surprised by a dividend cut, which would set the stage for a big decline in the price of GPS stock.
On the date of publication, Ian Bezek 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.