The stock market offers investment opportunities that can satisfy just about any investor’s taste on the spectrum between growth and income. And those preferences mean that an unacceptably risky purchase for one person might fit perfectly into another’s portfolio.
However, there are a few classes of stocks that likely won’t mesh with most retirees’ financial goals because the businesses don’t generate predictable sales and profit growth.
Below we’ll look at a few examples of stocks to avoid if you’re seeking dependability in your retirement investments.
Don’t stretch for yield
Specialty retailer GameStop (NYSE: GME) pays out a massive dividend that today yields over 10%. That income is fairly well protected, too, given that the company is expecting to post earnings of between $3.00 and $3.35 per share in 2018, compared to its dividend commitment of $1.52 per share.
Yet there are major risks surrounding that tempting dividend. GameStop’s profitability is on a brutal downtrend right now, for example, as video game fans have moved more of their software spending onto online sales channels. The retailer’s diversification strategy, meanwhile, has hit a major snag; its consumer technology division is struggling with reduced sales and slumping profits. And almost all of its 2018 earnings are predicted to arrive around the core holiday shopping season, so even a small stumble during that period could have a dramatic impact on actual results for the year.
Retirees interested in investing in this space might instead consider Activision Blizzard (NASDAQ: ATVI). The industry-leading video game publisher pays a far more modest yield, but its business is benefiting from several positive trends that should power many more years of healthy growth ahead.
Steady wins the race
Shake Shack‘s (NYSE: SHAK) business has a lot going for it, especially when it comes to sales growth. Revenue soared 29% in the most recent quarter, which gave management confidence to reaffirm their target of opening as many as 450 locations across the U.S., up from just 100 today.
That attractive growth profile might make the burger upstart a tempting bet for some investors, but the stock isn’t for everyone. Shake Shack hasn’t proven that its concept can thrive in a wide range of markets, since most of its business still comes from the New York City metropolitan area. Sales trends aren’t especially robust in those existing locations, either. Customer traffic dipped last year and is on pace to fall for a second straight year in 2018.
Retirees might prefer investing in the industry leader instead. McDonald’s (NYSE: MCD) sales growth is on the upswing, with customer traffic improving across each of its geographic markets. And in contrast to Shake Shack, Mickey D’s has a bright profitability outlook: Its operating margin is expected to climb further above 40% of sales over the next few years.
Diversity is better
Fitbit (NYSE: FIT)‘s newest product releases have investors feeling optimistic that a sharp growth rebound could be on the way. But the same factor that makes such a sales spike possible should keep retirees away from the stock. Specifically, Fitbit relies on just a few product releases in one industry niche to drive its entire operating results.
In contrast, Garmin (NASDAQ: GRMN) sells a wide range of consumer tech devices outside of the wearable-tech segment. This diverse portfolio includes the marine and aviation products that helped sales and profitability both inch higher last year even as Fitbit’s top and bottom lines collapsed. Sure, Garmin’s revenue expansion pace isn’t likely to accelerate much from its current modest rate, while Fitbit could post a dramatic rebound in 2019. But there’s also a much lower chance that the GPS device giant will post an annual loss, as Fitbit has done in each of the last two fiscal years.
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Demitrios Kalogeropoulos owns shares of Activision Blizzard, GameStop, and McDonald’s. The Motley Fool owns shares of and recommends Activision Blizzard and Fitbit. The Motley Fool owns shares of GameStop and has the following options: short July 2018 $14 calls on GameStop. The Motley Fool has a disclosure policy.