Three Stocks to Avoid in 2025
The last one is "where money goes to die" ...
I’m a Contrarian Investor by nature …
It appeals to the same “drive-for-the-truth” DNA that made me a really good reporter.
And that market approach was fostered by my early investing mentor — a Legg Mason broker named Jim Liddle, who was an avowed value guy.
So I like going “against the crowd.” And I like buying stocks that are “unloved” and beaten down.
But beaten-down stocks aren’t all created equal. There are plenty even I wouldn’t touch — that I’d downright avoid.
In that spirit, here’s a short list of “Stocks to Avoid in 2025” — and the reasons why …
(When) Will Boeing Get Going?
Boeing Co. (BA)
The Backstory: I’ll be honest: This one pains me to write. Back in September 2011 — at my old newsletter, Private Briefing — I recommended Boeing in the low $60s, and my subscribers rode it to a peak north of $430 eight years later. And the dividend kept rising — meaning the “yield-on-cost” surged a great deal, too.
But it wasn’t just the stock that intrigued me: My Dad was an engineer who spent most of his 50-year career in the defense industry with companies like Pratt & Whitney and Northrop Grumman Corp. (NOC) — and he instilled in me a love of airplanes and aviation history that I treasure to this day.
I also spent a slice of my 40-year journalism and stock-picking career covering the defense-and-aerospace sectors, which means I know much of Boeing’s backstory by heart.
For instance, it was Boeing President Claire Egtvedt who literally made a “bet-the-company'“ decision to build a prototype four-engine airplane called “The Model 299” for a U.S. Army Air Corps bomber design competition. We’re talking about the tail end of the gnawing Great Depression, Boeing was on the ropes, but Egtvedt believed the airplane would be needed — badly — in the years to come.
So he took the risk.
If you read the press reports of that time, you’ll see that the Boeing airplane was viewed as cutting-edge technology. (Even today, looking at photos, it’s a gorgeous aircraft). The Model 299 was destroyed in an accident that forced the Air Corps to award the contract to another company. But it so outclassed all its rivals — indeed, most of the airplanes of its time — that the Air Corps made a small order, with more to follow.
The Model 299 turned into the B-17 Flying Fortress. It was a staple of the Air War over Europe, played a role in the Pacific Theater, too, and greatly helped the Allies win World War II.
Boeing was known for that kind of innovation: It supercharged air travel with the 707 and revved up global air travel with the 747 Jumbo Jet. The Boeing B-52 Stratofortress strategic jet bomber first flew in 1952 — 72 years ago — and more than 70 are still flying. (The U.S. Air Force jokes that the planes are older than the crews who fly them).
Yes … Boeing was a leader. An innovator. For military and commercial aviation. It was a Top 5 defense contractor. It was America’s No. 1 exporter. And, along with Europe’s Airbus SE, it was part of a global duopoly that was expected to dominate commercial jetliners for decades to come.
Emphasis on … was.
Why It’s On This List: Two crashes of the new Boeing 737 MAX-8 jets — one in October 2018 and the second in March 2019 — killed a total of 346 people and led to the grounding of the MAX jets twice.
(I flew on a brand new Boeing 737 MAX-8 in October 2017 — on a Southwest Airlines Co. (LUV) flight from Charleston, S.C., back to Baltimore after an annual planning meeting for the financial publisher I worked for. When the flight attendant learned of my interest in Boeing, she told me the airplane had just been delivered. In addition to the photo here, I have in-flight videos, including one of our landing in Baltimore.)
Those human toll of those afore-mentioned crashes triggered a New Era for Boeing.
And it wasn’t a proud one.
It was akin to kicking over a rock and uncovering millions of crawling bugs. The groundings and investigations revealed safety issues, labor strife looming product-line holes and a corporate culture that was rotting the company from the inside out.
And as I know from my years as a business reporter — covering other struggling onetime U.S. icons like Eastman Kodak Co. (KODK) — corporate cultures are not a simple fix.
It doesn’t happen overnight. It’s not “broken today, fixed tomorrow.” And with companies like Kodak — as my Dad used to say — “sometimes tomorrow never comes.”
Boeing suspended its dividend in March 2020 due to the financial impact of the COVID-19 pandemic and the grounding of the 737 MAX jets. Boeing's last yearly profit was in 2018, when it posted net income of $10.45 billion.
It’s still dealing with major supply-chain issues (back to that in a moment), and a seven-week strike late last year “uglied up” the story even more, costing Boeing $10 billion.
With Boeing, all that derring-do, innovation, leadership gravitas and global dominance was chewed away and replaced by “professional managers” and “professional bean-counters.”
The Bottom Line: Boeing lost its mojo and forgot how to build really great airplanes.
Longer-term, there’s reason for (cautious) optimism. The long-term outlook for air cargo and air travel remains strong. And that growth in air travel is being driven by the category of jetliner represented by the 737.
It pains me to write this about one of my favorite companies of all time: But Boeing is now a turnaround play. And I need more evidence that the turnaround can take flight before I’ll buy that stock again.
Because I’m an airplane lover, Boeing is still a favorite company. But it’s not a favorite stock.
I hope that changes …
No Sugar For Starbucks
Starbucks (SBUX)
The Backstory: Back during my journalist days, my non-journalist friends used to needle me by saying that I couldn’t be a “real” reporter because I didn’t have a “bottle” in my lower desk drawer … and I didn’t drink coffee.
It was all in fun. And I needled them back — pointing to my interviews with folks like Amazon’s Jeff Bezos, former U.S. President Richard Nixon, General Electric CEO John F. “Neutron Jack” Welch, former Pittsburgh Steeler Franco Harris and more — to “prove” I was a real reporter.
And in 22 years in the Newsrooms of America, I only ever knew one reporter who kept a bottle in his lower desk drawer (you know who you are, Steve).
But my wiseacre friends got one thing right.
I didn’t drink coffee.
Never liked it.
My Dad drank copious cups of the stuff. When I was little, he drank it with cream and sugar. By my teens, he drank it black with sugar. By the time I was later in my reporting career, and he was getting to the tail end of his working life, he’d gone from “Old School” to “Hard Core” and drank it black.
He actually dug Mickey D’s coffee or tall cups from the 7-Eleven.
Which is to say that my family was never much on coffee king Starbucks Corp. (SBUX).
My non-affinity for coffee isn’t the reason that Starbucks has made my “Stocks to Avoid” list, however.
In fact, I’m not even saying that Starbucks is a bad company. Or that I’m afraid of “turnaround” situations.
(Indeed, folks who’ve followed my work for years know that I’m a value guy — and often an outright Contrarian Investor. That means I’m a gamer when it comes to turnarounds — and other “special-situation” opportunities.
But I do think — with all the elements of uncertainty stacking up this year — there are other better opportunities available to you. (I just shared two of them in this year’s MoneyShow Top Picks Report.)
Thanks to my years of experience doing this, I know that one of the best “triggers” for a special-situation turnaround is a new CEO. And Starbucks has one. His name is Brian Niccol; he joined the company back on Sept. 9, and he came from Chipotle Mexican Grill Inc. (CMG), where he engineered a turnaround following a food borne-illness crisis that made 1,100 sick between 2015 and 2018 (a year when profits plunged 44% and shares 40%).
Helped by his fixes, Chipotle's revenue doubled and its profits increased almost seven times. The upshot: The company’s stock price zoomed almost eight times under Niccol’s stewardship.
That “turnaround track record” supercharged Starbucks investors: The coffee-chain’s stock soared 24% back on Aug. 13 — the day Niccol’s hiring was actually announced. But the shares have been whipsawed since then — probably because of the “instant gratification letdown syndrome” (my term), where regular investors and Wall Street alike realized the “fixes” will probably take a year (as is expected).
Since joining Starbucks, Niccol has introduced a "Back to Starbucks" plan to make visits nicer for consumers. He wants to make stores seem more “welcoming,” offer simpler menus, return to self-service stations and serve folks faster. And he put a stop to the practice of charging extra for milk-and-cream alternatives — something that ticked people off.
Why It’s On This List: In my years as a reporter covering big public companies, I did get to watch a small cadre of executives who earned the “turnaround specialist” sobriquet. But it’s a small club. And, invariably, many of those specialists end up someplace where their bag of tricks doesn't work and the “magic” runs out. Each turnaround is different. Each company’s challenges are unique. And timing plays a role, too. For instance, if we run into an economic downturn buzzsaw, the lack of a “strong consumer” tailwind will mean the asset (strong economy) that helped Chipotle will turn into a liability (weak economy/uncertainty/recession) with Starbucks.
I mean, if the economy flatlines — or the any of the dozens of trouble points we’re watching kick over — fewer folks will want to spend $5, $6, $7 or $8 for a special beverage.
(A trivia point: In 2018, William E. Lewis Jr. ordered what’s probably the most-expensive Starbucks drink ever — a Super Venti Flat White with 170 espresso shots — and 11,000 milligrams of caffeine — at a cost of $148.99.)
Other issues included labor problems, a commodity-price surge (coffee soared 70% last year) and more.
Its China issue is also significant. At the end of the third quarter, Starbucks had 7,596 outlets in China — or about 19% of its global total. Same-store sales were down 14% in the last quarter. Activist investor Elliott Investment Management is pushing management to take a tough look at those China operations — something Niccol says he’s working to understand, given the “extreme” level of competitiveness there.
Other companies — like Yum! Brands Inc. (YUM) — have separated their China operations via spinoffs, or or sold stakes to private-equity firms. Spinoffs unlock value, create extra focus and provide the kind of autonomy executives need to focus on their sector or market, without having to worry about the rest of the company. We love spinoffs in general — though we focus on the “right” ones to recommend. So that’s a move to watch for.
The labor issue, too, merits watching.
Back in December, about 11,000 Starbucks workers involving 300 stores across 11 states staged their largest-ever walkout. The strike — prompted by haggling over wages and allegations of unfair labor practices — ended on Christmas Eve. Workers were demanding increases of as much as 64% in the minimum wage and a 77% boost over the pact’s three-year span. Starbucks offered 1.5%.
The Bottom Line: As I saw during my reporting days, labor strife starts at “sticky” and can end at “ruinous” — often for both sides. Costs go up and morale can skid. So we’ll keep an eye on this.
What Ails CVS?
CVS Health Corp. (CVS)
The Backstory: I caught this headline in a Fortune magazine story analyzing the CVS debacle: “Departing CEO Karen Lynch’s reign started brilliantly, then unraveled fast.”
That’s a tough epitaph for any executive — but especially one heading a company that ranked No. 6 on the Fortune 500 list of the largest U.S. companies.
She resigned as CEO back on Oct. 18 because of financial struggles, a string of forecast cuts and a year-to-date drop of 19% in its share price. She’d taken the top job early in 2021.
It’s a high-profile company … and not just because of its Fortune 500 ranking.
With 9,165 locations across 51 states as of late 2024, CVS Health is America’s biggest retail drugstore chain. It’s also a major pharmacy-benefits manager that covers 27 million folks through its Aetna insurance unit.
Why It’s On This List: The company has been operating “well below its potential and has fallen short in its investment and actuarial approach in recent years,” hedge fund Glenview Capital Management — which holds a stake in CVS — said not long before the CEO resigned.
Surging medical costs, rising claims from the company’s Medicare Advantage coverage and a drop in quality ratings for its coverage plans have all been factors in the forecast cuts — something Wall Street absolutely hates.
And its string of acquisitions haven’t worked out as planned. CVS Health spent $8 billion on home health care provider Signify Health and then another $10.6 billion early last year on Oak Street Health, an operator of clinics for Medicare Advantage patients. Many experts say CVS has overpaid in some of its deals: When it bought Aetna for $69 billion in 2018, the deal price carried a 73% premium.
That brings us back to that Fortune headline/epitaph.
At the start of her stewardship, CVS was chugging down all the revenue from the COVID-19 vaccine surge. She drove acquisitions believing that care-delivery would give the company more business and more control over its future, The Associated Press reported.
“We are closer to the consumer than anyone else,” so boosting our care offerings will give us more control over costs and the market, Lynch told analysts in 2021.
There are other issues, too, including:
Legal Woes: CVS faces a U.S. Justice Department over its opioid practices, which has added to the company's legal and financial woes.
Labor Problems: There are allegations of understaffing and mishandling of opioid prescriptions.
Store Closures: It announced plans to close 300 stores last year and 270 more this year — moves that include both standalone locations and others inside Target Corp. (TGT) department stores.
If the stock market is the final (long-term) arbiter — as we believe — the stock price tells the story: The all-time-high share price was $101.29 back in February 2022; CVS currently trades at about $46, which is a decline of 55% during one of the most-prolonged bull markets in years.
The fix-it plan includes the management change at the top, cost cuts that include the afore-mentioned store closings, strategic restructuring and new Medicare and health initiatives. That sounds good — but it’s akin to fighting and multi-front war — which is never easy and brings additional casualties.
Some of the other highlights that caught my eye include:
Strategic Partnerships: Here we’re talking about partnerships — and maybe more acquisition deals — to give it more “reach.” This could include more projects like its in-store Target locations or closer collaborations with Aetna.
Going Digital: This is a growth-hunting foray that could include Telehealth services and other digital-health offerings.
Adding to its Health Services Menu: Expanding such offerings as pharmacy services, MinuteClinics and specialty pharmacy services — which adds to (and diversifies) its top line.
A Breakup: Last fall, there was talk of CVS spinning off its Aetna insurance unit — a move that might bring me back to the table, were it announced (and some other problems mitigated or fixed outright).
The Bottom Line: Until then, we’ll keep asking like the YouTube video below: What’s going on at CVS?
As a Contrarian Investor, I’ll be the first to admit that today’s “I wouldn’t touch this” stock could be tomorrow’s intriguing turnaround opportunity.
For now, though, I see better places for your money in 2025.
See you next time;
