In pre-pandemic times, tech stocks were equated with long-term growth. For several decades, the sector led the way, rewarding investors with big returns. However, 2021 has seen many tech-focused companies struggle to maintain that momentum.
Shares in many technology companies took a big hit in March during a general selloff in the sector. Not all have bounced back, and there’s now a growing list of tech stocks to avoid until they turn things around.
Some of these companies have been struggling for years. Some saw their business suffer during the pandemic and have yet to adjust. Others had their moment, but the fast pace of technological development is passing them by.
- 51job (NASDAQ:JOBS)
- AppFolio (NASDAQ:APPF)
- Citrix Systems (NASDAQ:CTXS)
- CMC Materials (NASDAQ:CCMP)
- Cree (NASDAQ:CREE)
- Dun & Bradstreet Holdings (NYSE:DNB)
- Medallia (NYSE:MDLA)
Whatever the reason for their current situation, these are tech stocks to avoid. They don’t belong in your portfolio until the companies can prove they have a strategy to turn their business around.
Tech Stocks to Avoid: 51job (JOBS)
This Chinese HR staffing and online job search company was flying high from 2016 to 2018. During that time, its shares soared over 300%. Since then? JOBS stock has been on a roller coaster. Performance has struggled. In its latest quarter, 51job reported that its net income was down 72% year-over-year. The effort to increase business has been costly, with advertising and promotion expenses up 209% in the first quarter.
The biggest concern — at least to American investors — has been the threat that this Chinese stock may be delisted. Adding to the complications, since last September, there have been attempts to take the company private. In June, there was another announcement about a proposed $5.7 billion deal. With the turmoil surrounding privatization efforts, the threat of delisting, and its struggling performance, JOBS is definitely one of those tech stocks to avoid.
At time of publication, JOBS stock earned a D rating in Portfolio Grader.
AppFolio (APPF)
AppFolio is a niche Software-as-a-Service (SaaS) provider. The company focuses on providing cloud-based property management apps. It offers residential and commercial versions.
APPF stock didn’t do much after the company went public in 2015, but in 2017 it began to take off. By last June, it had posted growth of 625% since the start of 2017. Then it began to sputter. On March 1, the company released Q4 and full-year 2020 earnings. Concerned that the company’s costs were increasing faster than revenue, the market punished APPF stock. Shares dropped 17% the following day. At this point, APPF remains down nearly 26% since the start of the year.
Add the damage done by the pandemic that has resulted in struggling residential and commercial rental markets to the mix, and this another prime example of the kind of tech stocks you should avoid. At least for now.
The current Portfolio Grader rating for APPF stock is F.
Citrix Systems (CTXS)
Citrix Systems is a well-known tech company with a history extending back to before the dot-com crash. Its products are in use by 98% of Fortune 500 companies. The SaaS provider is well known for solutions like a desktop virtualization solutions for remote work. In a hybrid work environment — with many companies still having staff working from home for at least part of the week — Citrix should be thriving.
However, CTXS stock is performing poorly. It’s down 21% so far in 2021. The latest setback occurred on July 29, with a single-day loss of over 13%. What’s the problem? In a nutshell, pretty much everything. In its latest quarter, operating margins fell by nearly half to 10%. Worse, the company issued guidance that projects those margins will continue to fall, landing between 8% and 9% for full-year 2021. The company is also projecting full-year revenue will remain virtually static or even shrink. From $3.24 billion in 2020, to between 3.22 billion and $3.25 billion for 2021.
Until Citrix management rights the ship, I would stay away.
CTXS stock currently rates an F in Portfolio Grader.
CMC Materials (CCMP)
It’s no secret that semiconductor stocks have been defying the general tech stock trend in 2021. Many semiconductor stocks have been surging, with massive demand, order backlogs and customers lining up. Among CMC Materials’ primary products are the slurries and polishing pads used in the manufacture of computer chips.
So why is CCMP stock down 15% so far this year?
In large part, the blame lies with China. When the company released its Q2 earnings in May, it reported record revenue. However, it only topped the previous year’s revenue by 2.2% and missed analyst expectations. In addition, concerns were raised about the company’s slurry business. It is largely dependent on a Chinese market that may be artificially strong because customers in that country are buying up supplies as a hedge against potential U.S. trade sanctions. In the week after those Q2 results, CCMP shares dropped 19%.
Last week, CMC Materials reported another record quarter. However, the China situation came up again and was directly referenced in the earnings release, with the company noting: “lower than expected CMP slurries revenue in the short-term, driven by variability in order patterns from certain Chinese customers.” On that news, CCMP stock dropped over 14%.
With an F rating in Portfolio Grader, you should definitely avoid CCMP stock at this point.
Cree (CREE)
Once known as an LED lighting pioneer, Cree sold off that business in 2020. The timing was good. The price of LED lighting was being pushed lower and lower as the technology went mainstream. In addition, with the pandemic shuttering many buildings, the market for LED lighting suffered “massive declines.”
Cree is now focused on semiconductors and RF tech for 5G applications. Despite the pivot, CREE stock has performed poorly this year. After topping $128 in February, it’s currently trading below $96, or 25% lower. Among the investor concerns are the fact that despite revenue rising 21% YoY in its latest quarter, GAAP loses increased from 52 cents per share a year ago to 59 cents per share.
The company’s CEO pumped up Cree’s efforts: “With the sale of our LED business now complete, we accomplished a critical milestone in our journey to becoming a pure-play semiconductor powerhouse and have an even greater focus on converting opportunities in our pipeline and expanding our manufacturing capacity.”
Until Cree successfully converts those opportunities into sales (and makes those sales profitable), CREE remains on this list of tech stocks to avoid.
CREE stock earns D ratings across the board in Portfolio Grader.
Dun & Bradstreet Holdings (DNB)
Dun & Bradstreet is focused on providing data and analytics for commercial customers. This includes the company’s “DUNS” number, which is used to generate reports that predict the reliability and/or financial stability of hundreds of millions of companies globally. The DUNS number is also used by the federal government to track grants.
A formerly publicly traded company, Dun & Bradstreet went private, then returned with a 2020 IPO. Since then, DNB stock has slumped 32%. As InvestorPlace contributor Ian Bezek pointed out at the time of that 2020 IPO, the company’s revenue has been flat for the past decade.
In its most recent guidance, the company is projecting revenue to top $2.1 billion in 2021. If that’s turns out to be the case, it would be a significant increase over 2020’s $1.74 billion. However, at its current valuation and current trajectory, DNB stock still feels too risky.
At the time of publication, DNB stock was rated F in Portfolio Grader.
Medallia (MDLA)
Finally, we have Medallia. The San Francisco-based company bills itself as a cloud-based customer and employee experience company. That translates into SaaS solutions that capture feedback from employees and customers. Valuable information for companies, without a doubt. However, Medallia is having trouble converting that into profits. In fact, in its latest quarterly report, the company saw net losses increase from $32.5 million in the previous year to $52.4 million.
While MDLA stock is up 5% overall in 2021, it’s down 29% from the end of January, and 9% since going public in the summer of 2019. I would want to see that trajectory going the opposite direction before considering an investment.
Further cementing its status among tech stocks to avoid, the current Portfolio Grader rating for MDLA stock is a D.
— Louis Navellier and the InvestorPlace Research Staff
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Source: Investor Place