Top 2 Risk Off Stocks You May Want To Dump This Quarter

As the market continues to navigate a volatile landscape, investors are increasingly seeking refuge in defensive stocks. However, not all defensive stocks are created equal. In this article, we will examine two stocks that may pose significant risks in the current quarter, despite their defensive nature.



1. Tesla (TSLA)
Tesla, the electric vehicle (EV) giant, has been a darling of the market for years. However, recent developments have raised concerns about the company's fundamentals and risk profile.



* Volatility: Tesla's stock has been notoriously volatile, with a beta of 1.86, indicating that it is 86% more volatile than the S&P 500 Index. This means that on days when the market is down, TSLA shares tend to decrease by more than the index.
* Lack of Diversification: Tesla's stock correlates closely with the broader market, both in the short and long term. This means it provides only low levels of diversification to a portfolio similar to the broader market.
* Fundamentals: While Tesla scores a perfect 10 on fundamentals, thanks to strong margins, high revenue growth, a solid balance sheet, and high earnings quality, other quantitative factors are more neutral to negative. A trend of insider selling, mixed earnings expectations and performance, and a poor score for relative valuation all contribute to a middling overall rating on Tesla stock.

2. German stocks (DAX 40 index)
The German economy undeniably had a lousy year in 2024, but its stock market shrugged off the bad news to put in a strong performance. However, market analysts warn that the decline in German manufacturing and its wider economy could lead to a correction for the index this year, especially with increasing competition from China.

* Geopolitical Risks: Geopolitical tensions, such as the Russia-Ukraine conflict, could disrupt supply chains and negatively impact German manufacturing.
* Economic Slowdown: A slowdown in the German economy, which narrowly avoided recession in 2024, could lead to decreased consumer spending and corporate investment, driving stock prices lower.
* Competition from China: The rise of Chinese competitors, such as BYD, could further pressure German automakers and other manufacturers, leading to a correction in the DAX 40 index.

In conclusion, while Tesla and German stocks may appear to be defensive plays, their fundamentals and risk profiles suggest otherwise. Investors should be cautious when considering these stocks in the current quarter, as they may pose significant risks to their portfolios. Instead, investors may want to focus on more defensive stocks with stronger fundamentals and lower risk profiles.