2 Beaten-Down Stocks to Avoid in the Tariff-Fueled Correction

With equity markets reeling due to President Donald Trump’s tariffs, many investors are taking this opportunity to buy shares of top companies on the dip. It’s a great strategy, but it’s essential to avoid those companies that only look undervalued but actually aren’t.

Some stocks are lagging the market for good reasons — because their businesses look shaky and their prospects uncertain. These are the corporations to avoid even as they fall along with broader equities. Let’s consider two examples: Teladoc Health (TDOC 0.14%) and Tandem Diabetes Care (TNDM 0.12%).

1. Teladoc Health

Teladoc Health, a telemedicine specialist, might not feel a substantial direct impact from Trump’s tariffs. The company makes money from subscriptions to various virtual care offerings, including a primary care unit, a therapy segment called BetterHelp, and a chronic care business.

However, Teladoc has other issues that make the company unattractive. Since the pandemic started receding, Teladoc’s revenue growth has declined substantially:

TDOC Operating Revenue (Quarterly YoY Growth) data by YCharts.

BetterHelp, once a key growth driver for the telehealth expert, faced stiff competition and appears to be losing market share. In the fourth quarter, BetterHelp’s revenue declined by 10% year over year, while the platform’s number of paying users dropped by 6%.

Moreover, Teladoc remains unprofitable despite its high growth margins. The company cannot keep expenses — particularly marketing costs — down, because it’s seeking to establish itself as a leader in the expanding telemedicine industry.

One of Teladoc’s most exciting growth opportunities comes from its international expansion efforts. In the fourth quarter, international revenue grew by 10% year over year to $105.1 million. Total revenue was down 3% to $640.5 million. Here’s the issue, though: These international initiatives might lead to significant increases in the company’s expenses. It’s not clear whether this faster-growing segment will be enough to allow Teladoc to turn profitable.

True, the company is working on other initiatives. It could earn third-party coverage for BetterHelp, which might jolt the platform’s growth. It also launched several artificial intelligence initiatives that could attract more customers and improve efficiency.

That said, Teladoc Health’s poor results in recent years and lack of a clear path to profitability make it far too risky a stock to invest in right now.

2. Tandem Diabetes Care

Tandem Diabetes Care develops innovative insulin pumps. One of its best-known devices is the t:slim X2, whose claim to fame is its size. It’s a discreet option that can still hold about as much insulin as most of its competitors. Patients can also pair this pump with other devices, such as DexCom‘s continuous glucose monitoring systems, to automate insulin delivery.

Despite these perks, Tandem has struggled in the past few years, for several reasons. First, economic troubles led to fewer patients purchasing new pumps from the company. Second, it has plenty of competition, including from companies with much more cash, such as Medtronic. Third, Tandem is not consistently profitable.

These headwinds have led to a terrible stock-market performance in the past three years. To make matters worse, Tandem’s shares have plunged by 54% already this year.

Trump’s tariffs threaten the state of the economy, which could be a significant headwind for the company: Tandem relies heavily on other countries, including Mexico and China, to manufacture its insulin pumps. So these tariffs could have a direct impact on its expenses, and squeeze both the bottom line (which is already not impressive) and its margins. They could also lead to inflation or a recession, reducing the demand for its products — which would mean lower revenue.

Tandem Diabetes Care’s prospects look bleak at the moment despite its highly innovative attributes. For now, it’s best to avoid the stock.