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Buying stocks at significantly reduced valuations can lead to some incredible returns later on. But that doesn't mean that any stock down big is a good buy. In many cases, investors could be setting themselves for pain and losses instead.
There's always some hope that a struggling stock can turn things around, but three that I wouldn't count on doing that are Tilray Brands (NASDAQ: TLRY), Moderna (NASDAQ: MRNA), and Plug Power (NASDAQ: PLUG). Here's why I would completely avoid these stocks, regardless of how cheap they might look.
Tilray Brands
For years, investing in Tilray stock has been a way for investors to bet on the hope that marijuana will be legalized in the U.S. market. When there's a flurry of optimism around legalization or any type of reform in the U.S., the stock is usually one of the big winners that day.
But over a longer stretch, the trend has been a disastrous one, and that's because nationwide legalization doesn't look to be coming anytime soon. In five years, shares of Tilray are down more than 94%. And although the company has diversified into alcoholic beverages during that time, I don't think it's in much better shape today.
Tilray continually burns through cash and incurs losses, and I just don't see a reason to take a chance on this troubled pot stock. Despite its low market cap, which is now less than $1 billion, investors shouldn't be surprised to see the valuation continue to fall in the months and years ahead.
Moderna
Healthcare company Moderna is an example of a business that I see as blowing a huge opportunity to diversify in recent years. It generated billions in revenue from its successful COVID vaccine, and rather than diversifying to be less dependent on that revenue or acquiring other healthcare companies, it chose to double down and continue to focus on COVID shots.
Its respiratory syncytial virus vaccine obtained approval from regulators last year, and the company is working on a flu vaccine, but there's no big exciting opportunity to convince investors that it's still a good stock.
Despite its growth over the years and the business becoming much more well known with investors, shares of Moderna are now trading at the levels they were at when the pandemic began. The company is in cost-cutting mode and expects revenue within a range of just $1.5 billion to $2.5 billion this year, which is a reduction of around $1 billion from what it was previously expecting.
At this point, it's hard to see a potential catalyst that can turn things around for the business, which is why I would avoid the healthcare stock even it falls lower.