3 Stocks to Avoid If This Bull Market Turns Bearish

Stocks to sell

It’s been a difficult year for many investors to digest. Despite higher interest rates, the economy looks strong, with employment figures continuing to remain robust. In fact, unemployment levels are near historic lows, suggesting the bear market that took place last year perhaps shouldn’t have happened.

That said, there are clear reasons for investors to remain cautious about the outlook for stocks moving forward. Credit card debt recently hit a record high, meaning these higher interest rates could significantly hinder consumers’ purchasing power. Geopolitical and banking concerns aren’t completely gone.

With that in mind, let’s dive into three stocks investors should avoid if a bear market does rear its ugly head. I hope it doesn’t. However, the market is cyclical, and we’re likely to get a prolonged downturn at some point. Thus, for those looking to play it safe, here are some stocks to put on watch right now.

Tesla (TSLA)

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Following Tesla’s (NASDAQ:TSLA) Q2 earnings report on July 19, concerns about declining gross margins overshadowed positive earnings and revenue figures, leading to a stock pullback. Additionally, California’s attorney general is probing Tesla for Autopilot safety and false advertising issues, requesting input from customers and ex-employees.

Although the company reported record revenue, operating margins dropped to 9.6%, the lowest in years. Tesla remains a highly-volatile stock despite its massive market capitalization. Further, numerous analysts downgraded and lowered price targets, echoing dwindling confidence. Notably, Quiver Quantitative, a company monitoring Congressional stock trading, disclosed recent TSLA share sales by U.S. representatives.

Other EV stocks offer better growth at lower prices. Thus, with Tesla likely to struggle in Q3 (and potentially see production declines), I think investors may want to consider other EV players for exposure to this sector.

Nvidia (NVDA)

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As many companies embrace generative artificial intelligence software, Nvidia’s (NASDAQ:NVDA) graphics processing unit chips cater to AI’s computing demands, making NVDA a strategic pick for the machine learning trend. NVDA stands as the primary U.S. AI chip maker, holding a substantial share of the market and is projected to generate significant AI-specific revenue.

Given the excessive optimism and high expectations from Wall Street experts, it might be wise to lessen your NVDA stock exposure now. Nvidia’s crucial role in the AI hardware supply is acknowledged, and despite my own optimism, the growing consensus of bullish sentiments triggers contrarian concerns. As the saying goes, even trees don’t grow to the sky. The rapid rise we’ve seen in NVDA stock could make way for a rapid move lower in a bear market scenario.

Now, most Wall Street experts highly recommend buying Nvidia stock, projecting increasingly elevated price targets, and its valuation is notably inflated. While I appreciate Nvidia’s merits, contrarians and value-oriented investors should exercise caution. It’s advisable to contemplate profit-taking rather than increasing your NVDA stock position, guarding against potential adverse shifts in share prices.

Apple (AAPL)

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One of the stocks I remain the most bullish on from a long-term perspective is Apple (NASDAQ:AAPL). Indeed, in the consumer discretionary sector, there really aren’t any comparable companies investors can point to with the same kind of brand loyalty and competitive moats as Apple. Many investors maintain a positive outlook for the stock, given the company’s ability to grow cash flows and earnings consistently over the long haul.

That said, as a purveyor of high-end consumer discretionary goods, Apple is an obvious choice for this list of stocks to avoid if a bear market materializes. That’s because the ability for consumers to pay $1,500 or $2,000 for a slightly-upgraded phone may be limited if times get tough.

Of course, Apple’s growing services ecosystem remains strong. And while analysts like Dan Ives dismisses the notion of a “broken growth story,” it’s entirely plausible that Apple’s growth at least takes a rest at some point. 

For those looking to play it safe, AAPL stock’s 31 P/E ratio may warrant caution.

On the date of publication, Chris MacDonald has a LONG position in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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