Do Not Get Caught Catching Falling Knives
One of the more difficult things for investors is passing on a stock that is trading at a discount. Don’t get me wrong, sometimes these are just great opportunities to buy. But for many stocks, it is what we refer to as catching a falling knife. It never works out well for those who are trying to make the catch. After 2022, there were a number of popular stocks that dropped by 60% or more. Most of these are high-growth, speculative companies that got ahead of themselves during the bull market. I usually write about stocks that I think have potential, but in this article, I am going to highlight two stocks to avoid for now.
Lucid Group (NASDAQ: LCID)
Oh Lucid, Lucid, Lucid. How many times have I written about being bearish on this stock? I don’t hate the premise: luxury electric vehicles with long-range and state-of-the-art technology. I just don’t think there is enough EV adoption right now to justify the high prices. The stock has reflected this, falling by more than 60% from its highs.
Shares are currently trading at just over $10.00, which is what the company went public for after it merged with CCIV. Earlier this week Lucid made a curious move by announcing a $7,500 rebate for customers that buy its cars. But the rebate will not be paid by any government but instead, by Lucid itself. It is an interesting way of saying they are slashing the prices of their cars because nobody is buying them. Other automakers like Tesla ($149.9|-3.57%) and Ford (NYSE: F) recently announced their own price cuts. Clearly, investors were not fooled because the stock tumbled by more than 10% following the announcement. I just don’t see the bullish case for Lucid right now, so even after a 60% decline, I’m not touching this EV stock.
Affirm (NASDAQ: AFRM)
Remember when this stock was trading for well over $150? Well, today the stock is trading for just over $13.00. Shares tumbled this week after the company missed on earnings and announced that it will be cutting 19% of its workforce. It’s been downhill for Affirm over the past year even after the company announced strong partnerships with Amazon ($179.22|-1.14%) and Stripe.
Affirm will only ever be as strong as consumer buying power is. With a potential global recession kicking in, there are going to be a lot of consumers pinching their pennies. You might think people will be seeking out things like Affirm to lighten the load on their wallets, but a large part of me thinks these consumers will avoid shopping altogether. As with Lucid, I just can’t get there with Affirm. I understand that Buy Now Pay Later is popular in some parts of the world, but in an environment where consumer spending is going to fall off a cliff, I don’t think you can be very bullish on Affirm’s stock right now.
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