VRM - The 7 Worst Stocks to Buy in a Bear Market

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The worst stocks to buy in a bear market tend to be those that were overvalued to begin with.

It’s been a year to forget for equity investors. The stock market shed a ton of value this year and wrapped up its worst first half in years.

The pullback, though, has created multiple opportunities for investors to scoop up some long-term value and growth stocks. However, there are some that just aren’t built to perform in times like these. To navigate the current crisis effectively investors need to be aware of the worst stocks to buy in a bear market.

Growth stocks have taken a substantial hit during the current market downturn. Additionally, customers have held back their investments in the consumer discretionary sector.  Investors have taken a risk-off approach and are more circumspect in investing in speculative stocks.  Having said that, let’s look at seven of the worst stocks to pick up in a bear market.

Norwegian Cruise Lines (NCLH)

Cruise stocks are typically cyclical, so you shouldn’t hold on to them if you feel a recession is near. Whether a bonafide recession is around the corner or not, the world economy remains in shambles, which bodes horribly for companies like Norwegian Cruise Lines (NYSE:NCLH).

Norwegian is the third-largest cruise line operator. As with its peers, NCLH’s business was ravaged by the pandemic-induced slowdown.

Though it produced excellent results in the second quarter, its third-quarter guidance points to a tough road ahead, making it one of the worst stocks to buy in a bear market.

It expects third-quarter revenues to fall in the $1.5 billion to $1.6 billion range compared to the consensus of $1.85 billion. Additionally, occupancy rates will stay in the low 80% range for the quarter. Meanwhile, its debt remains over $36.4 billion, while its share count continues to increase at a healthy pace.

Nikola (NKLA)

Electric truck maker Nikola (NASDAQ:NKLA) is among a host of up-and-coming companies hoping to make a splash this year. However, supply chain hiccups and the inconducive economic conditions have played spoilsport.

NKLA stock remains largely range-bound in the $6 to $7 level and appears to be still reeling from its post-IPO fraud fiasco.

Nikola affirmed its guidance on producing 300 to 500 vehicles by the conclusion of the year. However, at the end of the second quarter, it delivered only 50 vehicles, which means a significant ramp-up is needed to meet its objectives.

Moreover, it expects to generate just $110 million in revenues this year, a far cry from what it needs to become the company it always has claimed to be. For now, it is one of the worst stocks to buy in a bear market.

United Airlines (UAL)

United Airlines (NASDAQ:UAL) prides itself on being the largest international U.S. carrier. It’s done remarkably well in riding the post-pandemic tailwinds and generating strong sales in recent quarters but might have run out of luck.

Its second-quarter results came in behind analyst expectations.

CEO Scott Kirby talked about how the airline sector faces three main challenges: operational constraints, record-high fuel prices and the possibility of a recession.

Though these cost pressures might ease from today’s level next year, the management isn’t factoring in how much sales recede as pent-up demand becomes satiated.

UAL is on an aircraft buying spree and expects to spend a whopping $5.2 billion this year. It expects to cover its cash flow costs, weakening its already weak balance sheet and making it among the worst stocks to buy in a bear market.

Lindblad Expeditions (LIND)

Lindblad Expeditions (NASDAQ:LIND) is a specialty cruise operator that benefitted from the pent-up demand for outdoor experiences in the post-pandemic world.

Trip prices typically cost around $5,000 to $25,000, depending on an itinerary. LIND stock took a massive hit during the pandemic, and its shares continue to struggle amidst the current market downturn. Naturally, with record high inflation and interest rates, Lindblad’s niche-centric approach makes it an obvious sell.

Recent results, where its revenue has grown by triple digits, may seem like a lot to investors. However, these results are distorted because of pandemic-related disruptions.

Also, its margin profile is firmly in the red as it looks to navigate the economic headwinds at this time. Hence, it’s an incredibly risky play at a time when consumer discretionary stocks are taking a beating in the stock market.

Vroom (VRM)

Shares of used car retailer Vroom (NASDAQ:VRM) took a massive haircut during the course of the year as bankruptcy fears loom. It has shown accelerating losses, and its management has introduced a turnaround plan to improve margins, cash burn, and operational expenses, aiming to improve profitability substantially.

If it can hit all its targets, it could potentially reach 5% to 10% EBITDA margins. However, considering the current market situation, that seems unlikely.

Its shares crashed by double-digits after it reported disappointing second-quarter results. Its sales dropped by 37% on a year-over-year basis and missed estimates by $68 million.

Additionally, it forecasts year-end liquidity of $500 million at the midpoint, comfortably dwarfed by its massive debt balance of over $1 billion. Revenues will likely be sluggish for the foreseeable future, so Vroom remains in a tough spot to improve its positioning.

Coinbase (COIN)

Coinbase (NASDAQ:COIN) is one of the top crypto companies facing massive headwinds and a challenging crypto market. It serves over 100 million customers across the globe and had over $278 billion in crypto-related assets last year.

The goal remains to become the leading financial services player for institutional and retail consumers in the crypto asset ecosystem.

Perhaps the main problem with its business is the lack of diversification. It is heavily linked to crypto prices, which is why its stock price has tanked during the crypto winter.

Its business is not profitable and isn’t expected to be profitable over the next three years. Its valuation is highly speculative, while its fundamental strength is remarkably weak. It isn’t likely to break even in the next three years, and recent market challenges have set it years apart from its targets.

Cedar Fair (FUN)

Cedar Fair (NYSE:FUN) operates an amusement parks business that has been an incredible performer over the past five years. It’s another consumer discretionary stock that has taken quite a hit during the current market downturn.

FUN stock has shed more than 20% of its value in the past six months. Typically such businesses are cash flow machines during times of healthy economic growth. However, during times of economic weakness, FUN stock and its peers have historically underperformed the market.

Though it has held up well during the current crisis, its profitability metrics remain a major concern. In the previous recession in 2009, its revenues took a substantial hit, and if we experience another recession, similar results should ensue. Additionally, the stock remains pricey across multiple price metrics, which is perhaps another cause for concern.

On the date of publication, Muslim Farooque did not have (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.

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