Passing on 4 Green Screen Stocks

In most cases we are looking for Green Screen stocks to consider for investment, but it is also helpful to take the time and eliminate some stocks that we don't want to consider.

This helps "weed down" the universe of potential picks, helping us focus on other stocks that may warrant further research.

It also provides examples of things to avoid when on the hunt for new stocks to invest in.

Today, I want to discuss 4 current Green Screen names that get more or less an immediate "pass" from consideration, for various reasons.

New Relic (NEWR)

New Relic isn't a bad business. Similar to other Green Screen names like Datadog (DDOG) or Dynatrace (DT), it offers a SaaS solution for collecting data to monitor performance and derive business insights. It works as an "operational dashboard" for applications and IT assets. I wrote in depth about the monitoring and analysis space a while back, check out that article for a more in-depth dive.

While that article also lays out my thesis for avoiding investment in this cohort, it isn't exactly the reason why we're calling a "pass" on New Relic. No, that is more straightforward - New Relic is being acquired by private equity. The deal was for $87/share, and the stock currently trades just under $86, so there's no real arbitrage opportunity at present, either. With no upside left in the stock, it is an easy pass.

New Oriental Education (EDU) and Kanzhun (BZ)

New Oriental Education provides education services like test preparation and tutoring in the People's Republic of China (PRC).

Kanzhun runs a mobile app-based job search and recruitment service called BOSS Zhipin, also in the PRC.

I really don't need to do much more research than that to hit the "pass" button on these two. I've written in the past about why Chinese stocks have too many risks for Americans to invest in. That rationale holds for these two as well. When you add in the fact that the education space has been a generally horrible place to invest in for the past 15 years, and job search boards are competitive, low-barrier to entry businesses, it only solidifies the opinion that these two should be avoided.

Azul (AZUL)

Azul is a Brazilian airline, with 158 destinations, 300 routes, and just under 200 planes. The vast majority of its routes are to destinations within the South American continent, although it has a handful of international routes to the U.S. and Europe. It was founded by David Neeleman, who also founded U.S.-based airline JetBlue.

Airlines are a tough, tough business. They are a hugely competitive, which prevents any sustainable pricing power. The capital expenses of buying and maintaining airplanes is immense. It is beholden to economic cycles, which are magnified in the demand for airline travel (both consumers and businesses travel far less in tough economic times). Nearly all of the labor force is unionized, and strikes have been common throughout the history of the industry. Barriers to entry are surprisingly low, with new entrants entering (and exiting) the market every few years.

It is little surprise, then, that the story of the airline industry is one of booms and busts, bankruptcies and mergers, and - importantly - investors losing a lot of money. Warren Buffett famously stated "if a far-sighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down". Like many new airlines in the past, Azul is enjoying its honeymoon phase as a younger concern (founded in 2008) with newer planes and profitable routes. History says it is likely to eventually suffer the same troubles as its peers. No way I'm recommending an airline on this site. Pass!