3 Stocks I'd Hate to Buy

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As an investor, you have thousands of companies at your fingertips. With a few clicks of your mouse and a little bit of cash in your account, you can buy a stake in businesses doing virtually anything, almost anywhere on earth. With so many options available to you, it's easy to get paralyzed into either inaction or making a less-than-ideal decision just to get the process over with.

One great way to narrow down your choices to just a few of the best ones available is to rule out the types of companies you don't want to own. That way, you'll have fewer to pick from among those better suited to your own personal investing style. With that in mind, here are three stocks I'd hate to buy right now and why.

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Everyone's favorite e-commerce giant

Amazon.com (NASDAQ: AMZN) has been an incredible growth story, and its ability to disrupt industries stretches well beyond retail and into areas like cloud computing and logistics. Its past growth and incredible revenue trajectory have earned its early investors a well-deserved return. What scares me away from owning its stock today, however, is its valuation.

While the company's top line has surged, its bottom line hasn't done much. Its net margins are a mere 1.7%, on revenue above $175 billion. And even then, most of its profits come from its web services, not its retail business. Though it's true that part of Amazon's soft profits comes from its willingness to invest to drive its growth, the fact that it still struggles to post profits in its retail business is a concern. After all, it has now been in this business for decades.

As Amazon CEO Jeff Bezos famously said, "Your margin is my opportunity." Amazon's own margin is coming from computing services -- an area where it faces stiff competition from the likes of Microsoft (NASDAQ: MSFT). Microsoft is no stranger to aggressive competitive practices, and it doesn't have to support a massive retail business with the revenue from cloud computing.

Microsoft -- as it gets stronger in cloud computing and leverages its scale -- has the opportunity to do to Amazon what the latter has done to brick-and-mortar retailers -- namely, squeeze its margins. When Amazon's cloud computing margins become Microsoft's opportunity, what happens to its bility to use that money to support the rest of its empire and its growth?

Amazon's current market valuation is based on the assumption of continued rapid growth, driven in part by sustained profitability in its web services business to provide capital for that growth. With Microsoft now able to seriously flex its own web services might, a big part of that valuation is even more uncertain than it previously had been. That makes the level of uncertainty in Amazon.com's future too high at today's valuation for me to consider buying its shares right now.

The distracted visionary carmaker that can't deliver to scale

The second stock I'd hate to buy is electric car/solar panel maker Tesla (NASDAQ: TSLA). The problem with Tesla is that it already trades at a valuation consistent with successful and generally profitable carmakers, despite the fact that it is losing money and having trouble hitting its own production goals.

When Tesla was the only company making electric cars with reasonable ranges, it may have been able to justify a premium valuation due to its unique market position. Now that other manufacturers have decent ranges for some of their vehicles, a key reason electric-vehicle buyers to pick Tesla's mid-market focused Model 3 has been reduced.

With Model 3 production missing targets and net reservations "stable," driven by cancellations from frustrated customers, Tesla may be starting to see the impact of that stronger electric-car competition. A lot has to go right for Tesla to be worth what the market values it today, and that's why I'd hate to buy its stock right now.

The walking dead former retail titan

The third stock I'd hate to buy right now is former retail titan Sears Holdings (NASDAQ: SHLD). In many respects, Sears Holdings is a dead retailer walking, kept "alive" only through the cash infusions from liquidating its once-great assets. It unloaded its Craftsman brand of tools last year to stay afloat, and it has even resorted to selling its DieHard batteries on Amazon.com just to keep some cash coming in.

The prospects for Sears Holdings is so dire that it was willing to accept a limited default status on its credit rating in order to exchange that debt for an extended maturity date on it. It's also auctioning off a significant chunk of its remaining profitable real estate in order to raise cash to allow it to continue operating for at least a little while longer.

With the company expected to continue hemorrhaging money for the foreseeable future, all this financial engineering looks suspiciously like rearranging the deck chairs on the Titanic. It's something to do to kill time, but it doesn't look likely capable of fundamentally changing the trajectory that Sears Holdings is on. Its shares are at legitimate risk of going to $0 in a bankruptcy filing. As a result, I'd hate to buy its stock right now.

There's a difference between "not buying" and "actively shorting"

That said, of those three companies that I'd hate to buy, I'd only really consider shorting Sears Holdings. Though I view Amazon.com to be wildly overvalued and at increasing risk from competitors, it is still profitable and growing. Likewise, Tesla thinks it can make it through the rest of 2018 without raising more capital, and may yet figure out how to deliver operating profits. Both Amazon.com and Tesla are market darlings, and as long as they remain that way, I'll be content to merely watch from the sidelines.

Fortunately, in investing, there's no need to swing at every pitch the market throws your way. So I'll gladly watch from afar for the time being. Indeed, if Amazon.com or Tesla ever appear reasonably priced for their earnings prospects, I might even be convinced to buy shares in their businesses -- just not at their current prices.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Chuck Saletta owns shares of Microsoft. The Motley Fool owns shares of and recommends Amazon and Tesla. The Motley Fool has a disclosure policy.