Invariably, with the Federal Reserve forced into the unenviable task of suppressing the monetary punch bowl, certain actions to avoid would arise due to mass layoffs. Indeed, the earlier response to the coronavirus pandemic led to a dramatic increase in the real money supply M2. However, the inflation didn’t become particularly pronounced until people started spending the “extra” money.
Of course, that’s what happened when the global economy gradually began to reopen. In 2022, the velocity of the money supply skyrocketed, which initially fueled business activity. Predictably, however, prices got too hot, leading to both poor consumer sentiment and hawkish intentions on the part of the Fed. Naturally, the circumstance led to job cuts, which then necessitated a discussion of which stocks to avoid.
Research from high-level sources indicates that layoffs typically lead to lower productivity and profits. Additionally, they can negatively affect the morale of the remaining employees, causing further drops in productivity. Given how ugly the question is, it’s probably best for investors to avoid these stocks.
Zillow (Z, ZG)
Regarding actions to avoid based on layoffs and their negative implications, Zillow (NASDAQ:ZNASDAQ:ZG) is an easy name to convey. After its failed attempt to get into the iBuyer business — where entities leverage technology to flip homes for profit — Zillow has really brought trouble into its own home.
Essentially, as Wired.com pointed out, the iBuyer model could be a canary in the economic coal mine. While house flips can work well in decidedly bullish market environments, they don’t work well when prices are steadily falling. Add higher interest rates that erode collective affordability and you have a serious problem on your hands.
Financially, I am concerned about the company’s negative profit margins. If rates continue to rise throughout this year, home sales will likely fall. In this case, Zillow will not be able to right the ship. And management probably thinks the same when it laid off about 5% of its workforce in October last year. Thus, this is one of the stocks to avoid.
Interactive Platoon (PTON)
Another easy-to-identify name for stocks to avoid, home gym equipment specialist Interactive Platoon (NASDAQ:PTON) had its moment. That moment was what society called the coronavirus. Unfortunately, Covid-19 fears have started to fade since at least early 2022, if not earlier. And with that, the enthusiasm for PTON shares has also increased.
Over the past year, stocks have lost nearly 63% of equity value. When it comes to lifetime returns, data from Google Finance reveals that PTON has hemorrhaged a staggering 54%. Essentially, if you haven’t gone down to the top of (or near) the seesaw price action, you’ve blown yourself. To be fair, for the year, PTON gained 43%. It is possible that speculation on a short squeeze could drive stocks higher.
Additionally, in the spirit of transparency, hedge analysts rate PTON as a consensus Moderate Buy. Unfortunately, his overall financial situation is very poor. Combined with Peloton laying off a significant portion of its workforce, first in February and then October of last year, PTON represents one of the stocks to avoid.
Again, when it comes to stocks to avoid, companies like carvana (NYSE:CVNA) offer an easy-to-present idea. Admittedly, there is some reluctance to broach the subject of stocks to sell due to the emotions (and money) involved. However, anyone willing to be objective about CVNA will likely come to the same conclusion. At best, it is an extremely speculative investment. At worst – well, you can probably think of something yourself.
Essentially, Carvana suffers from a similar frame to Peloton. Back at the worst of the Covid-19 crisis, Carvana enjoyed significant relevance. With few people willing to take public transportation, demand existed for contactless transactions for personal vehicles. Now that Covid-19 fears have subsided, few customers are willing to pay the premiums associated with door-to-door vehicle deliveries.
Indeed, the financial table says everything you need to know. Carvana has a poor track record, with an Altman Z-Score of 1.28 reflecting a struggling business. Unsurprisingly, profitability measures fell into negative territory. Frankly, CVNA is easily a case of stocks to avoid.
Earlier this month, the video services platform Vimeo (NASDAQ:VMEO) announced rather unsurprising news: management said it would cut 11% of its workforce, citing various macroeconomic pressures. Moreover, this was not the first time that the company suffered a reduction in its workforce recently. In July last year, Vimeo reduced its roster of employees by 6%.
In addition, Wall Street has not spared its attention on the dumping of VMEO shares during these troubled months. Over the past year, stocks have lost 74% of equity value. Additionally, one can’t help but notice that the company launched its initial public offering at an inopportune time in the spring of 2021. While circumstances at the time looked good, last year’s spike in inflation had an impact on the underlying business.
Still, the contrarians will point out that Vimeo enjoys a consensus Moderate Buy rating. Moreover, the average price target among hedging experts stands at $7.50, implying almost 96% upside potential. In addition, the company is not in debt, which gives it tax flexibility. Nonetheless, VMEO ranks among stocks to avoid based on broader business concerns. In a tough environment, video services can be one of the easy-to-cut expenses among enterprise-level customers.
Another company that performed remarkably well during the worst of the Covid-19 crisis, DocuSign (NASDAQ:DOCUMENT) facilitated contactless services through its electronic signature platform. However, like other stocks to avoid that benefited from the unique Covid scare trade, declining concerns about the SARS-CoV-2 virus spelled the end of the company.
Really, the price action in the chart says it all. Over the past year, DOCU has fallen over 55% in equity value. At the height of its popularity in 2021, DocuSign had an average weekly price of over $300. At the time of writing, the shares are trading for less than $60.
To be fair, recent market momentum has seen DOCU gain 2.8% on the year. However, this rate is significantly lower than that S&P500 performance of more than 4% over the same period. And while sentiment among hedge funds is currently very positive, these institutional investors have significantly reduced their exposure to DOCU since the fourth quarter of 2021. In September last year, DocuSign laid off 9% of its workforce. With fading relevance, this is one of the titles to avoid.
One of the names among the actions to avoid that I don’t feel happy to mention, Lyft (NASDAQ:LYFT) under normal circumstances offered a brilliant narrative. Compete with industry stalwarts Uber (NYSE:UBER) in the ride-sharing business, Lyft never had the massive footprint of Uber. But because he was less aggressive, the finances underlying LYFT stock presented a more acceptable profile.
Unfortunately, this may no longer be the case. With so much competition for fewer remaining consumer dollars in a tough economic environment, Uber could completely dominate the ride-sharing industry. Plus, with Uber Eats – the company’s food delivery service – the biggest rival enjoys wider relevances. Tellingly, over the past year, LYFT has lost nearly 65% of equity value. During the same period, UBER lost 29%. Obviously, both suffered heavy losses, but one clearly ranks above the other.
In July last year, Lyft laid off 2% of its workforce. However, I wouldn’t be surprised if more cuts materialize. With a poor balance sheet and negative earnings, the company has a mountain to climb.
Wells Fargo (WFC)
Last on this list of stocks to avoid is the banking giant Wells Fargo (NYSE:WFC). On paper, banking firms appear to enjoy greater profitability due to higher interest rates. However, this is only one side of the story. The other side is that higher rates discourage borrowing due to the higher costs involved. Therefore, WFC and its colleagues at the big banks are faced with important questions.
Currently, WFC shares are down 22% over the previous year, which is much worse than the benchmark stock index. In addition, particular concerns exist regarding the company’s real estate activities. A few days ago, I reported on management’s decision to scale back its mortgage business. To market watchers, that sounds a lot like layoffs.
Indeed, Wells Fargo announced last year that its total workforce had shrunk by about 14,000 people in the third quarter. Such a drop in the workforce suggests that the real estate segment is suffering from significant demand problems. Therefore, it’s probably best to consider WFC as one of the stocks to avoid for now.
As of the date of publication, Josh Enomoto had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.