3 Stocks All Value Investors Should Avoid
Monthly Series: Episode 2 – Avoid Burning Your Hard-Earned Money
3. MicroStrategy - MSTR
MSTR outlook hinges almost entirely on Bitcoin’s performance, making it a high-risk, speculative play rather than a traditional equity investment. The company’s core software business is struggling, with revenues declining (down 6.6% year-over-year) and profitability eroding due to higher costs and a shift to lower-margin subscriptions. Its aggressive Bitcoin acquisitions—funded by heavy debt ($7.2 billion in long-term debt) and shareholder dilution—have left it financially vulnerable, with negative cash flow (-$53 million in 2024) and minimal liquidity ($38 million cash). While Bitcoin’s recent rally has buoyed the stock, MicroStrategy’s valuation (4.98x price-to-book) appears stretched given its lack of earnings and dependence on volatile crypto markets. Regulatory risks, potential Bitcoin price swings, and the strain of servicing debt add significant downside risk.
For investors seeking Bitcoin exposure, MicroStrategy offers leveraged upside, but this comes with extreme volatility and financial fragility. The company’s fundamentals—declining software revenue, massive impairment losses ($1.79 billion in 2024), and unsustainable capital structure—are alarmingly weak. Even with new accounting rules reducing earnings volatility, the stock remains a bet on Bitcoin rather than a sustainable business. Given the high debt, liquidity risks, and overvaluation relative to traditional metrics, the recommendation is SELL. Investors should avoid unless they are willing to accept speculative, binary outcomes tied purely to Bitcoin’s price movements.
2. Southwest Airlines Co - LUV
Southwest Airlines (LUV) faces a mix of challenges and opportunities. The company has shown resilience with a 5.3% revenue growth in 2024 ($27.5 billion) driven by strong demand and strategic moves like assigned seating and international partnerships. However, profitability remains pressured by rising labor costs (salaries up 9.8%) and operational disruptions, such as the 2022 winter storm fallout. While the balance sheet is robust (cash of $7.5 billion exceeds debt of $6.7 billion), cash reserves have dipped, and free cash flow is negative due to heavy capital expenditures ($2.1 billion), raising liquidity concerns. Additionally, the decision to charge for checked bags risks alienating its cost-sensitive customer base, and Boeing delivery delays could slow fleet modernization.
Technically, the stock appears oversold (RSI 37.47) but remains in a bearish trend, trading below key moving averages. Valuation metrics like a P/E ratio of 31.65 suggest the stock is pricey compared to peers, despite recent declines. Short-term headwinds—including volatile fuel prices, competitive pressures, and negative market sentiment—outweigh the potential benefits of long-term strategies like redeye flights and premium seating. While Southwest’s strong brand and liquidity provide a safety net, the combination of high valuation, cash flow strain, and execution risks makes the stock vulnerable to further downside.
Given these factors, the recommendation is to SELL. The current risks, particularly overvaluation and operational uncertainties, overshadow the company’s growth initiatives. Investors should monitor Southwest’s ability to stabilize cash flow, execute its strategic shifts smoothly, and navigate industry challenges before reconsidering a position.
1. Joby Aviation - JOBY
JOBY is pioneering electric air taxis with promising partnerships and regulatory progress, but its financial health raises concerns. The company’s losses deepened to $608 million in 2024, driven by surging R&D costs (up 30% to $477 million) and stagnant revenue, which plummeted 87% to just $136,000. While its balance sheet remains solid with $933 million in cash and no major debt, cash reserves are shrinking, and reliance on stock issuance (12% dilution) to fund operations signals financial strain. The stock’s technicals reflect this uncertainty, trading below key moving averages (50-day: $7.05, 200-day: $6.42) with bearish momentum (MACD negative), though the RSI (40.65) hints it might be nearing oversold levels.
Long-term potential exists as Joby’s vertical integration strategy and partnerships (Toyota, Delta) position it to capitalize on the growing eVTOL market. However, near-term risks dominate: regulatory hurdles, high cash burn, and competition could delay profitability. The stock’s valuation (price-to-book: 5.54) appears stretched given its lack of revenue and widening losses. For investors with a high-risk tolerance and long horizon, holding might make sense to await market maturation. But for most, the combination of financial instability, dilution, and weak technicals suggests caution. Conclusion: SELL in the short term; consider HOLD only if you’re prepared for volatility and multi-year uncertainty.