Every investor loves talking about what to buy.
What you rarely see is a thread on what someone’s refusing to touch – and that’s a shame, because protecting your portfolio matters as much as growing it.
Warren Buffett’s first rule of investing is not to lose money.
He isn’t saying avoid risk entirely; he’s saying avoid situations where the risk clearly outweighs the reward.
Here are three stocks I’m staying away from today, and why.
What Makes Me Avoid a Stock?
Some common red flags make me shy away from a stock: weakening fundamentals, too much debt on the balance sheet, an expensive valuation, a shrinking competitive moat, or poor management.
Notice that only some of these are about the business.
The rest are about the valuation and the people running the business.
Good investing often starts with saying “no”.
Palantir (NASDAQ: PLTR) – Still Too Expensive
It’s hard to say anything negative about Palantir’s (PLTR) business.
For starters, its revenue grew by over 85% year on year (YoY) for 2026’s first quarter (1Q2026).
The company is also showing signs of operating leverage with profits more than quadrupling over the same period.
Palantir’s balance sheet also comes stacked with around US$8 billion in cash and no debt.
My concern is its valuation.
Even after suffering a near-40% drawdown from its 52-week high, this AI beneficiary still trades over 145x trailing earnings and roughly 82x forward earnings.
Simply said, if the business is booming, yet the shares are down significantly, this combination tells you that the market has priced its shares to perfection.
At these levels, your margin of safety is still slim despite a large drawdown and robust fundamentals.
Wall Street analysts are still bullish, expecting over 75% YoY growth for revenue with earnings doubling in 2026.
But has the market already priced in these expectations?
Even a wonderful business like Palantir can be a poor investment at the wrong price.
Pfizer (NYSE: PFE) – The Dividend That Looks Better Than It Is
On the surface, Pfizer is a dream stock for income-focused investors: a yield of roughly 7+% from a drugmaker that’s raised its dividends for the last 16 years.
However, is this dividend yield a gift or a warning label?
Over the last 12 months (LTM), this pharmaceutical giant paid out dividends amounting to US$9.8 billion while only generating around US$9.5 billion in free cash flow.
Simply put, the group is paying out more in dividends than the cash it actually generates.
With Pfizer currently holding around US$64 billion in debt against a cash position of over US$13 billion, do not expect any heroic support from the balance sheet anytime soon.
Coupled with the fact that Pfizer is facing a looming patent cliff that threatens US$17 billion in annual sales in 2030, this high dividend might not be as attractive at first look.
A high yield is never a substitute for fundamental analysis.
Lululemon (NASDAQ: LULU) – The Business Facing Structural Challenges
This athleisure company, a former compounder darling, divides people.
Since peaking in late 2023, shares of Lululemon are down close to 80%, trading near US$120 per share with an LTM price-to-earnings ratio of just 10x.
In its most recent quarter ending 3 May 2026 (1QFY2026), revenue rose 4% YoY to US$2.5 billion.
However, operating income fell 37% to US$276.9 million with operating margins slipping 7.3 percentage points to 11.2%.
Making matters worse, management has cut full-year (FY2026) revenue guidance to roughly flat.
The telling detail: growth for 1QFY2026 is coming almost entirely from overseas (China up around 30% YoY) while the core North American market is shrinking, with management expecting the declines to continue.
Add crowded competition from the likes of Vuori, On and Alo, plus a new CEO coming in September this year, and this is a business fighting on several fronts.
A shimmer of hope for Lululemon bulls is that the balance sheet is pristine, with US$1.5 billion in cash and zero debt, affording the new CEO some flexibility to stabilise the ship.
While the low multiple looks enticing, falling earnings and the possible erosion of the Lululemon brand mean this is a name I’m avoiding for now.
When Could These Stocks Become Attractive Again?
Avoiding the three abovementioned stocks today doesn’t mean avoiding them forever.
I may still revisit Palantir at a reasonable valuation that leaves room for error, or Pfizer once there are stronger signs of the patent cliff being adequately replaced or when free cash flow comfortably covers the dividend again.
I am not above looking at Lululemon again once its North American sales and margins turn a corner.
None of my reasons is far-fetched – I just want to see the proof first, not assume it.
Lessons for Investors
Never fall in love with a story, be it AI, large dividends, or a beloved brand, to the point it causes you to ignore the boring evidence.
Don’t chase yield or momentum, because an attractive number by itself tells you nothing regarding sustainability.
Finally, remember that business quality wins over time; you don’t need to be clever on every trade.
Instead, you just need to avoid unforced errors.
Get Smart: Sometimes the Best Investment Decision Is Doing Nothing
In summary, successful investing is as much about discipline as opportunity.
The urge to do something such as buy the dip, grab the yield, or catch the falling knife has cost investors far more than patience ever has.
Steer clear of deteriorating fundamentals, stretched valuations, and unsustainable dividends, and you guard against the outcome that really hurts: permanent loss of capital.
Every dollar you don’t lose is one you’ll have ready when a truly great business goes on sale.
Sometimes the best move is to sit on your hands and wait for the fat pitch.
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Disclosure: Wilson H. does not own shares of any companies mentioned.
