Copyright 2014

2 Types of Stock I Never Plan to Buy

With such a horrific downfall, you might think that the industry is rife with deals, but I dont believe thats the case.

First and foremost, any investor in this industry is at the whim of the federal government. Thats because the tuition bills are paid largely through Title IV student loans. In fact, at many of these schools, Title IV loans -- when combined with military loans -- account for well over 75% of overall revenue.

Furthermore, the results from for-profit players are questionable at best. Though tighter regulation under the Obama administration has led healthier practices (ie, college counselors are no longer paid by commission on the number of students they bring in), for-profit students still have less favorable outcomes than their not-for-profit peers. They tend to drop out of school more regularly and have a tougher time finding a job even if they do graduate.

But perhaps the biggest threat is that what set for-profit schools apart -- online courses and flexible schedules -- is now becoming commonplace at traditional institutions of higher education. Because many of these institutions rely on state-run tax revenues and are not for profit, they offer far better tuition rates than for-profit rivals.

Add those factors together and you have a recipe for bad returns, even with these stocks having fallen so far from grace already.

Technology component makers

Im not against all technology stocks. In fact, tech stalwarts Alphabet, Baidu, and Facebook make up over one-third of my real-life holdings. Instead, I eschew investing in any technology company with the following three traits:

  1. It provides component parts that allow the guts of popular consumer devices, like smartphones, to run.
  2. A few customers account for a huge percentage of revenue.
  3. The moat is provided primarily through intellectual property rights.
  4. Valued at less than $5 billion, with less than $1 billion in cash.

There are lots of companies that fit this bill, the most well-known being companies like InvenSense (NYSE:INVN), Cirruc Logic (NASDAQ:CRUS), and Ambarella (NASDAQ:AMBA).