As I checked over my Stocks and Shares ISA portfolio at the weekend, two shares stood out. Not in a good way, unfortunately.
One FTSE 100 stock has plunged by 48% since I invested (twice!) last year, while the other is down 61%.
I’m now left wondering whether I should cut my losses and invest elsewhere.
A potential six-year wait
First up is Ocado (LSE: OCDO). Shares of the online grocer have fallen by a shocking 55% year to date.
This makes it the worst-performing Footsie stock of 2024, and it isn’t even close. In second-bottom place is St James’s Place, whose shares are ‘only’ down 29% year to date.
With a market cap of just £2.8bn, Ocado could soon be relegated to the mid-cap FTSE 250.
I invested because I’m bullish on its technology and robotic unit, which helps power the online operations of global grocers, including Kroger and Japan’s AEON.
Indeed, Ocado now has partnerships in seven of the world’s top 10 online grocery markets. This Technology Solutions division grew 44% in its last financial year.
However, the overall group remains unprofitable. It logged a £403m pre-tax loss last year. And its chief financial officer said it is expecting to make a pre-tax profit in the next six years.
Wow. That’s a long wait for potential profits, one which investors have clearly baulked at.
A misfiring business model
The second stock is Ginkgo Bioworks (NYSE: DNA). Shares of the synthetic biology company are down 71% in the past two years.
For those unfamiliar, Ginkgo programmes microbes on behalf of its customers. These include Novo Nordisk, Pfizer, and Merck.
Like Ocado, the firm is deeply unprofitable. It lost $178m in Q1. And while it added 17 new cell programs, representing 31% growth over the prior year, its $38m in revenue missed estimates by $8m.
Meanwhile, it lowered its full-year cell engineering services revenue guidance to $120m-$140m. That would be $1m year-on-year growth, at best.
For context, when the firm went public in 2021, it expected $628m from this segment.
This tells us the business model isn’t working. If you’re adding more programs from big pharma customers, but your revenue isn’t growing, then that is a serious problem.
To address this, management is cutting costs and changing how its contracts are negotiated.
One saving grace is that the company still had a $840m cash position at the end of the quarter. It is targeting adjusted EBITDA breakeven by the end of 2026.
Given the dreadful execution so far though, I’m not holding my breath.
Weeds and flowers
Warren Buffett is fond of quoting an analogy used by Wall Street legend Peter Lynch: “The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders.”
Fortunately, along with these duds, I have stocks like Axon Enterprise, Games Workshop, and MercadoLibre. All have been wonderful long-term winners for me.
These flowers more than make up for the weeds!
Another Peter Lynch quote comes to mind here: “Selling your winners and holding losers is like cutting the flowers and watering the weeds.”
As things stand, I certainly won’t be watering these portfolio losers. In fact, I’m tempted to pull them out and invest in stocks with better prospects.
