Three Scary Tech Stocks to Avoid in 2015

Last week, I predicted a strong year for tech stocks in 2015.

But that doesn't mean every single one is going to be a winner in the New Year.

While I usually share those winners with you in this space, a big part of making money over the long haul is avoiding losers whenever possible.

With that in mind, let's take a look at 2015's three worst tech stocks.

Tread carefully, though - their numbers may terrify you...

Here Come the Losers

If you've followed along with me even briefly, you know I'm optimistic about high tech and the life sciences - and the broader stock market itself, for that matter.

Indeed, the last five years have been great for investors across the board. The bellwether Standard & Poor's 500 Index is up more than 150% since the bull market began back in April 2009.

But now that we're hitting new highs, it pays to become even more selective in your investment choices.

I still strongly believe that tech will outperform the broader market next year. But there will be losers along the way, of course. And losing money on even a couple of stocks can really depress your overall profits.

Not surprisingly, the three stocks I want you to avoid violate Rule No. 4 of my five-part Tech Wealth Secrets system, which says to "focus on growth."

After all, stock prices tend to follow increases - or decreases - in earnings. All three of the stocks I want you to avoid have weak earnings growth.

Let's take a look.

Most Terrifying Tech Stocks of 2015 No. 1: SunPower

tech stocksFor 2015, SunPower Corp. (Nasdaq: SPWR) faces three big obstacles that make it a poor stock. Two are macro in nature, and one is company-specific.

First, the GOP will control both houses of Congress next year. I doubt that Republicans will repeal federal solar tax credits, but they may not renew this incentive when it expires in 2016.

Second, the energy sector is in turmoil as oil prices continue to fall. Oil is down more than 30% since last summer and looks to remain at depressed prices through at least the first half of next year.

In fact, it's an issue that affects the entire solar industry. Here's the problem...

Many investors are going to be reluctant to buy solar stocks when oil is so cheap, undermining support for SunPower.

And third, SunPower recently lowered guidance on sales and earnings for 2015. Bear in mind, this was roughly two weeks before OPEC said it would maintain current production, prompting another round of energy price cuts.

That follows a weak third quarter in which SunPower increased sales by a scant 1.6% and saw earnings per share fall nearly 73% to $0.20.

SunPower does have one thing going for it. The company is considering spinning off what's known as a "YieldCo," a dividend-paying stock based on solar-power assets.

However, given the weak nature of solar in a low-cost energy environment, the odds are good that SunPower puts that off until at least 2016.

Most Terrifying Tech Stocks of 2015 No. 2: Samsung Electronics

Sometimes a single number speaks volumes about a troubled tech giant.

And in the case of Samsung Electronics Co. Ltd. (OTCMKTS: SSNLF) that number is 56 - the number of smartphone models the company now has on the market. Samsung recently said it would cut back models by 30% to roughly 40, but that's still way too many to get true synergies.

No doubt, according to data compiled by IDC, Samsung still ranks as the leading global smartphone brand by shipments, with 25% of the market.

However, maintaining that lead is costing a fortune. Samsung's net profits fell a whopping 49% in the most recent quarter. At 7%, smartphone margins are the lowest they've been since 2009.

And the company's mobile division is in disarray. Just last week, dozens of mobile managers - the exact number isn't yet known - were relieved of their posts.

Even if the company wasn't reeling right now, I still think you should avoid it.

Here's why.

Plenty of foreign firms trade in the United States over the counter, as Samsung does. But most of those companies have plenty of volume and are easy to buy and sell.

Not so with Samsung. You not only have a high price, at $1,100 a share, but this tech stock is very thinly traded. That means you might not be able to get out in a pinch.

Most Terrifying Tech Stocks of 2015 No. 3: Groupon

Though it's down nearly 40% so far this year, Groupon Inc. (Nasdaq: GRPN) is starting to get buzz for its low price of $7.25 and as a possible "turnaround stock."

Moreover, the e-commerce leader in group discounts had a strong weekend between Black Friday and Cyber Monday, when sales rose 25% from the year ago-period.

But I still don't believe Groupon has a unique enough value proposition. Or as Warren Buffett might say, it has no real "moat."

As a pretty active online shopper, I'm inundated daily with coupons and special promotions. And as savvy online shopper, I just can't tell the value distinction between Groupon's deals and those from its competitors or from retailers themselves.

That's why I'm still not impressed with Groupon's recent performance, even though it did beat both sales and earnings estimates in the third quarter.

Sounds encouraging, until you realize Groupon has a return on equity of a negative 20%. Even worse, over the past three years, it has an earnings-per-share growth rate of negative 12%.

And remember, we often use the price/earnings to growth (PEG) ratio to look for true bargains, not just "cheap stocks." A PEG of 1 indicates "fair value." Anything higher means we're paying a premium.

Groupon has a PEG of 4.94.

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So, while Groupon's recent buzz may make it sound attractive, I'd stay away at least until we know it can do well for shareholders beyond a couple of strong quarters.

All of which brings me back to Rule No. 4. In my newsletter Strategic Tech Investor, we focus on companies with solid earnings growth, because their stocks give us the highest returns over the long haul.

The three tech stocks we've talked about today all face big questions about their long-term earnings.

But don't be discouraged.

In the year ahead, I'll be bringing you dozens of investment ideas that offer superior returns.

And together we'll continue our journey on the road to financial freedom with the greatest wealth engine the world has ever known - technology.

More from Michael Robinson: Contrary to the claims of some media pundits, 2015 will be a strong year for tech stocks. And the key to profiting is all about smart picking. These three tech ETFS may not seem like big-deal stocks to you, but they're actually high-octane claims on the hottest slices of Silicon Valley growth. And they all have the power to double your money...

About the Author

Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...

  • He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
  • He was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
  • As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.

This all means the entire world is constantly seeking Michael's insight.

In addition to being a regular guest and panelist on CNBC and Fox Business, he is also a Pulitzer Prize-nominated writer and reporter. His first book Overdrawn: The Bailout of American Savings warned people about the coming financial collapse - years before the word "bailout" became a household word.

Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.

And even with decades of experience, Michael believes there has never been a moment in time quite like this.

Right now, medical breakthroughs that once took years to develop are moving at a record speed. And that means we are going to see highly lucrative biotech investment opportunities come in fast and furious.

To help you navigate the historic opportunity in biotech, Michael launched the Bio-Tech Profit Alliance.

His other publications include: Strategic Tech Investor, The Nova-X Report, Bio-Technology Profit Alliance and Nexus-9 Network.

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