Last week, I revealed MarketMaster AI, a set of deep learning AI algorithms designed to beat the market.
The system was flashing warning signals like a hyperactive lifeguard on duty. Its top picks almost exclusively contained conservative blue-chip stocks — the type of investments to survive a bear market. The speculative meme stocks it once favored were all on the bottom.
MarketMaster AI was right. High-risk stocks have plummeted since that prediction. The Direxion Moonshot Innovators ETF (NYSEARCA:MOON), an index of risky meme stocks, is now down 20% in less than a month, a loss rate that should send any ordinary investor panicking. Meanwhile, the AI’s pivot into blue-chip stocks has proved correct. The top 5 stocks suggested by the system last week are off to a fine start.
MarketMaster AI is doubling down on its bearish call this month as markets continue their selloff. This week, the system flags five risky meme stocks it believes investors should sell immediately.
5 Meme Stocks to Sell Immediately: Workhorse Group (WKHS)
I’ve long been skeptical of management at Workhorse Group (NASDAQ:WKHS), an electric vehicle startup whose early ambitions included creating flying drones. A string of questionable financial decisions and flagrant self-dealing meant that common shareholders took enormous losses right on the nose. Shares have lost 96.5% of their value since I first turned from bull to bear.
MarketMaster AI now joins me in foreseeing further declines for this once-promising firm. Workhorse has seen its cash position dwindle from $140.1 million last year to $62.4 million, and its Q2 cash consumption of $65.8 million is enough to deplete remaining liquidity by September. These rapid cash burn rates historically suggest tough times ahead.
Workhorse has also struggled to generate meaningful revenue. It’s $4 million in Q2 sales also came with a $5.4 million jump in unsold inventory, and a glut of unsold electric vehicles is depressing prices across the board.
That puts Workhorse on a collision course with bankruptcy. Even if the firm successfully raises its share cap from 325 million to 525 million at its Aug. 28 meeting, management still faces an uphill battle to reach any meaningful scale. According to both AI and fundamental analysis, Workhorse is far riskier than even its 80-cent share price suggests.
2. Teladoc (TDOC)
Shares of Teladoc (NYSE:TDOC) surged from $60 to almost $300 during the Covid-19 pandemic. Telemedicine seemed like the future of healthcare, and Teladoc was in the right place at the right time
The New York-based firm, however, seems to have a broken business model. Its Q2 2023 operating margins were even worse than in December 2019. Teladoc is now a much larger company, but it’s failing to scale.
Teladoc’s recent share declines now land it on MarketMaster AI’s list of stocks to sell. Shares of profitless companies tend to keep going down after an initial fall, and Teladoc’s 15% decline since Aug. 1 generates the negative momentum needed for further drawdowns.
Wall Street analysts have also been slashing their estimates. In the past 30 days, Teladoc has seen its 2024 net income estimates revised down another 11%. These are more bearish signs to an already struggling firm.
In fairness, some loss-making firms have grown their way to profits. Ride-hailing companies managed to make money after a decade of consolidation. And even airlines can become profitable when enough players drop out.
But failures happen more often than successes in profitless industries. And MarketMaster AI cares far more about historical norms, which are now flashing a clear sell signal for TDOC stock.
3. Virgin Galactic (SPCE)
In 2019, a friend and I put a wager on Social Capital Hedosophia (IPOA), the financial entity that would take space tourism firm Virgin Galactic (NYSE:SPCE) public. We saw it as a “can’t-lose” investment where the worst-case scenario was getting our $10-per-share back.
The investment would prove a success. Mostly, anyway. The merger went through… shares went up… we walked away with our 20-cent arbitrage returns. I say “mostly” because we sold before Virgin Galactic’s meme-fueled run to $50.
Still, I’m happy we didn’t get greedy. If we had held on, we would now have lost 70% of our initial investment. Since 2021, shares of Virgin Galactic have plummeted below their $10 value.
MarketMaster AI states Virgin Galactic’s 30% decline this month now signals even more significant losses ahead. The company has struggled to generate revenues, and costs have only grown. As I mentioned earlier, history tells us that money-losing companies tend to keep going down after share prices begin to decline.
Even bullish Wall Street analysts are throwing in the towel. In the past year, the average analyst has revised their 2024 revenue estimates from $130 million to a token $19 million. Though Virgin Galactic still has roughly $500 million of net cash on hand (the figure after deducting debts), the company’s $125 million quarterly cash burn suggests the party won’t last forever. Best to sell now and seek better opportunities.
4. Fisker (FSR)
Shares of EV startup Fisker (NYSE:FSR) have dropped 34% this year. On Aug. 4, the company revealed it had produced just 1,022 Oceans, missing its target of 1,400 to 1,700. Even worse, the firm managed to deliver just 11 vehicles.
In other words, Fisker produces too few vehicles that no one wants.
That’s bad news in an industry increasingly oversupplied by electric vehicles. According to surveys by Cox Automotive, about 92,000 EVs now sit on dealers’ lots, a 342% increase from a year ago. Even Ford’s popular F-150 Lightning has required significant price cuts to stimulate demand.
The high end of the market looks even worse. Louis Navellier and his team note that companies such as Lucid Motors (NYSE:LCID) find themselves in a Catch-22 where becoming a desirable EV brand requires being well-known to start.
That puts Fisker in a tight spot. Mass-market buyers will shy away from Fisker’s midrange Ocean SUV, knowing that Hyundai Ioniqs and Ford Mustang Mach-Es are easier to service. Higher-end buyers will have Tesla Model Ys and Polestars to choose from. In business school terms, Fisker finds itself stuck in the middle with no clear market.
MarketMaster AI feels the same. It sees the meme stock much like it does Virgin Galactic: a money-losing company where share prices have dropped over the past several months. History tells us that these stocks tend to keep going down after an initial fall. Buyer beware. Fisker’s shares come with no warranties.
5. Peloton Interactive (PTON)
Finally, MarketMaster AI highlights Peloton Interactive (NASDAQ:PTON) as a meme stock to sell.
It has been a tough several years for the exercise equipment maker. In 2021, the firm was forced to recall 125,000 treadmills after a defect caused the death of a child and several dozen other injuries. Post-pandemic sales have also stalled out as people return to in-person gyms. Revenues have fallen from $4.1 billion in 2021 to $2.8 billion in the past 12 months. According to analysts surveyed by Reuters, Peloton could lose as much as $1.2 billion this year.
The firm has turned to a dose of self-help. This month, the company announced it would begin a business-to-business program, offering its services as a corporate perk. Management has also recently raised prices to try increasing margins.
But MarketMaster AI finds these strategies ineffective, at least on average. According to the system, money-losing turnarounds tend to keep falling in price until analysts meaningfully upgrade their estimates. Peloton’s 23% loss in the past month makes this firm a solid sell.
The reverse is also true. Rising share prices at money-losing companies tend to suggest more significant gains to come. But until Peloton’s shares do that, investors are better off selling this once-promising company and waiting for prices to find a bottom.
Biotech and Other Bearish Bets
MarketMaster AI also flags dozens of biotech companies to sell. Firms like Summit Therapeutics (NASDAQ:SMMT), Ardelyx (NASDAQ:ARDX) and Immunogen (NASDAQ:IMGN) find themselves at the bottom of the system’s list for September.
Overall, these moonshot bets tend to do poorly during bear markets. The potential profits from biotech stocks are far off into the future, which means small increases in their cost of capital have an outsized impact on their valuations. (In financial terms, their profits are “discounted” back further). We can expect the biotech sector to struggle over the next six months.
That means investors should consider shorting the entire biotech market with a broad-based index like the iShares Biotechnology ETF (NASDAQ:IBB) or SPDR S&P Biotech ETF (NYSEARCA:XBI). Biotech bets are risky, even for AI algorithms, so investors are better off spreading their bearish bets across dozens (if not hundreds) of companies. (As the drug Semaglutide shows, runaway blockbusters can also come from unlikely places. The Type 2 diabetes therapy is now marketed under the Ozempic, Wegovy and Rybelsus brands as weight loss drugs).
This also tells us that more pain could be ahead for other risky bets, from crypto to small-cap tech stocks. Readers should be aware that MarketMaster AI has seen this pattern before. And it’s telling us to reduce risk as valuations remain stretched.
As of this writing, Tom Yeung 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.