3 Stocks to Avoid According to Wall Street Analysts: April 2024

Stocks to sell

U.S. stocks sold off on Friday due to a number of reasons, including increased geopolitical tensions, higher-than-expected inflation figures, as well as elevation valuation. If the current macroeconomic environment persists, investors are likely to come up with a list of stocks to avoid in the near term.

Moreover, the earnings season isn’t off to a good start after JPMorgan Chase (NYSE:JPM) stock fell more than 6% after the banking giant released its first-quarter results. CEO Jamie Dimon also cautioned about persistent inflationary pressures and geopolitical tensions. 

Risk assets are likely to stay under pressure amid reports of potential conflict between Israel and Iran, adding to inflation concerns alongside fresh U.S. imports data. Iran’s Saturday attack on Israel spurred a flight to safety trade, strengthening the dollar and causing risk assets to sell off. 

While markets were closed over the weekend, Bitcoin (BTC-USD) and other digital coins fell sharply after Israel experienced its first direct attack from Iranian territory. Israel said it neutralized 99% of the 300 identified threats aimed at its soil. 

The onslaught of drones and missiles was allegedly retaliatory for a suspected Israeli strike that resulted in the death of senior Iranian officials in Syria. The increased tensions are likely to push risk assets lower, like high-growth tech stocks and cryptocurrencies. 

Let’s take a look at the top three stocks to avoid in April due to heightened geopolitical risks and market pressures.

Robinhood Markets (HOOD)

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Robinhood Markets (NASDAQ:HOOD) is a financial services company known for its commission-free trading app. Founded in 2013, it offers users access to stocks, options, ETFs, and cryptocurrencies with no trading fees.

Robinhood stock is likely to stay under pressure near-term due to the challenging geopolitical situation in the Mideast, as well as due to the rating downgrade at Citi Research (NYSE:C). The bank’s equity analysts downgraded Robinhood stock from Neutral to Sell, setting a price target of $16.00 (up from $13.00). 

Citi noted HOOD’s strong 2024 start, up 44% year-to-date, largely attributed to rising BTC prices. However, Citi believes valuation has disconnected from fundamentals, posing risks on potential BTC price pullback, slower retail activity, or market downturn, despite improved fundamentals. 

Robinhood stock is already trading pressure given the pullback in cryptocurrency prices following the attack on Israel on Saturday. These reasons make HOOD one of the stocks to avoid in April.

“We acknowledge fundamentals have improved in recent periods (healthy trading activity, AUC and deposit growth), which are driving an increase to our forward estimates/PT. But we see risks to the stock here on any material pullback in BTC prices,” Citi analysts said.

Arista Networks (ANET)

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Arista Networks (NASDAQ:ANET) is a provider of cloud networking solutions. Founded in 2004, it specializes in high-performance, scalable, and reliable network platforms for large data center and computing environments. 

Arista stock tumbled last week after Rosenblatt analysts cut their rating on the company’s shares. More precisely, Rosenblatt double downgraded ANET stock from Buy to Sell with a price target, signaling caution about the stock’s near-term outlook. 

Rosenblatt expressed concerns about Arista’s potential in AI Data Center networking, suggesting that while Ethernet is promising, Arista may not benefit as much as expected. He believes Arista’s AI opportunity is smaller than perceived, leading to an inflated stock price, a commentary which directly affected ANET stock.

“The company will likely continue to gain Enterprise share, but this type of business typically does not support super-high operating margins and super-premium EPS multiples,” Rosenblatt analysts said.

Moreover, Arista is a high-growth tech stock that is likely to trade under pressure given the sensitive situation in the Middle East.

Airbnb (ABNB)

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Airbnb (NASDAQ:ABNB) operates an online marketplace for lodging, primarily homestays for vacation rentals and tourism activities. Despite facing challenges, the company remains a dominant force in the alternative accommodations market. 

Last week, Needham & Company downgraded Airbnb stock from Buy to Hold and removed its price target, citing challenges for the company to expand beyond its core. Needham believes the market is overly optimistic about ABNB’s potential to disrupt the global OTA industry with artificial intelligence. 

“With the stock trading at a premium to peers relative to growth we are moving to the sidelines,” stated Needham & Company analysts.

This is the third downgrade which ABNB stock faced this year, following such actions at DA Davidson and Phillip Securities. 

“With no positive revenue impact from these new “beyond-the-core” expansion initiatives likely until CY’25 and our expectation of a more normalized growth trajectory for ABNB’s core accommodations business, we expect it may prove difficult for ABNB shares to maintain the magnitude of its valuation premium vs. peers,” DA Davidson analysts wrote.

On the date of publication, Shane Neagle did not hold (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.

Shane Neagle is fascinated by the ways in which technology is poised to disrupt investing. He specializes in fundamental analysis and growth investing.

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