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3 Struggling Businesses Investors Shouldn't Gamble on This Year

Motley Fool - Wed Jan 17, 9:15AM CST

The stock market has been picking up steam of late amid hopes of interest rate cuts and a soft landing for the economy in 2024. Should that happen, stocks could be on track for a great year. And investors may be tempted to pick up some struggling ones that may be overdue to rally.

But in some cases, investors may be better off resisting the temptation to take a chance on high-risk investments. Three stocks that crashed by more than 40% last year and that may still be too risky to invest in right now are Plug Power (NASDAQ: PLUG), Moderna (NASDAQ: MRNA), and Lumen Technologies (NYSE: LUMN).

Here's why you may want to consider staying away from these stocks.

1. Plug Power

Plug Power is a company that investors hope will become a great green energy investment in the future. The company offers hydrogen solutions, but the problem is that, while there may be enticing long-term opportunities from investing in green energy, the business also needs to be around in order to capitalize on them. And that's by no means a certainty for Plug Power.

The company raised "going concern" issues last year, which means that it is not certain it will be able to survive for another 12 months. The company says supply challenges have created significant risks for its operations, making it probable that it will need to issue more shares and dilute investors in order to keep operating.

Over the past four quarters, the company has incurred operating losses totaling more than $889 million. Its operating cash flow during that time has also been negative $1.2 billion. Meanwhile, the company has cash and short-term investments totaling less than $570 million.

There is no shortage of red flags here to suggest investors stay far away from Plug Power. Even if you think hydrogen may be the long-term solution for energy, that doesn't mean Plug Power will be around to benefit from that growth. Given the company's dire financial situation, investors are better off pursuing other growth stocks. Last year, Plug Power's stock fell by 64%.

2. Moderna

COVID vaccine maker Moderna is not expecting to have a good year in 2024. Management expects its top line to come in around $4 billion as demand for COVID vaccines subsides. What's troubling is that that forecast even includes revenue from its vaccine for the respiratory syncytial virus. In 2022, Moderna reported just under $19 billion in revenue.

The company does have other products in its pipeline, but what I find concerning is that it's focusing on areas where the growth may be limited. Its focus appears to be on COVID and flu vaccines, including a combination shot. But given all the competition with flu vaccines and COVID demand not being all that strong of late, I'm not terribly optimistic that the company's efforts will pay off.

It has been working on a personalized cancer vaccine with Merck which has been demonstrating promising results, but this is an area where there have historically been high failure rates in the past; the companies are facing an uphill battle.

Moderna has done little to diversify its business outside of COVID, and there may be too much dependence on COVID and flu revenue for this to be a good contrarian investment to take a chance on right now. Although shares of Moderna plummeted 45% last year, the stock still looks wildly overpriced with a market capitalization of more than $40 billion.

3. Lumen Technologies

Down a mammoth 65% in 2023, Lumen Technologies was a dreadful investment to own last year. Besides its beaten-down valuation, there simply isn't much to attract investors to the stock these days. The telecom company carries significant long-term debt, which totaled $19.7 billion as of last quarter (ended Sept. 30, 2023). Poor financial results and a need to pay down debt resulted in the telecom company suspending its dividend payments in 2022.

The company is in the midst of a turnaround effort that involves reducing its debt load and getting back to generating growth, relying on its Quantum Fiber business to help with that. But that will involve investments and spending cash to develop that business. The earliest investors may see the dividend return could be 2027, when the company expects free cash flow to be between $300 million and $500 million. That's still a far cry from the $1.7 billion in free cash it reported in 2022.

Given Lumen's uncertain road ahead, investors could be better off taking a wait-and-see approach with the stock, as there's still ample risk here.

Should you invest $1,000 in Plug Power right now?

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck. The Motley Fool recommends Moderna. The Motley Fool has a disclosure policy.

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