Stocks to avoid in 2026, according to 10 top fundies

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You can watch the video by clicking the player, listen to the podcast, or read an edited transcript below. These interviews were filmed on Tuesday, 9 December 2025.

For most investors, the biggest determinant of long-term outcomes isn’t finding the next multi-bagger – it’s avoiding the handful of stocks that permanently destroy capital. 

The data is unambiguous. In his landmark study Do Stocks Outperform Treasury Bills?, Professor Hendrik Bessembinder found that just 4% of listed US stocks accounted for all net wealth creation above Treasury bills since 1926, while the majority failed to outperform cash at all. 

For investors, that means the damage done by owning the wrong stocks can outweigh the benefit of trying to pick the next big winner. In other words, losses are concentrated, and so are mistakes.

That asymmetry matters even more for sophisticated portfolios, where capital preservation and compounding matter as much as upside capture. Avoiding the wrong stocks can quietly do more for returns than chasing the right ones.

With that in mind, we asked ten of Australia’s sharpest investment minds, spanning ASX and global equities, to nominate their stocks to avoid for 2026 and beyond.

Our featured fund managers include (in order of appearance):

• Steve Johnson - Forager Funds Management
• James Abela - Fidelity International
• Matthew Booker - Spheria Asset Management
• Joel Fleming - Yarra Capital Management
• Alan Pullen - Magellan Investment Partners
• Ben Griffiths - Eley Griffiths Group
• Tim Carleton - Auscap Asset Management
• Arms Rosenberg - Minotaur Capital
• Anna Milne - Wilson Asset Management
• Dr David Allen - Plato Investment Management (written responses only - see below)

Note: We thank the fund managers listed above for sharing their ideas in the spirit of the Outlook Series. All fund managers featured in this series manage diversified portfolios. This list is not, nor is it intended to be, a set of recommendations. Please do your own research and seek advice from a professional before making any investment decisions of your own. Past performance is not a reliable indicator of future returns.

Edited Transcript

#1 - DroneShield (ASX: DRO) and Iperionx (ASX: IPX)

Steve Johnson: I'll give you more than one. There are a lot of narrative-based stocks at the moment that don't have any cash flow, in some cases don't even have any revenue, that are trading with billion-dollar valuations. 

I think that's a space to be really careful of. We've already seen the likes of DroneShield and Iperionx sell off towards the end of this year. There's a lot more of them, and I think people should be super careful about that 'meme space', shall we call it?

#2 - Electro Optic Systems Holdings (ASX: EOS)

James Abela: I'd be careful about defence. I think we're seeing companies like Rheinmetall and Axon surge in global markets, and domestically, we've seen this in stocks like DroneShield and EOS.

DroneShield has already come down a lot and so has EOS. DroneShield is likely to make money going into next year, but I would be careful about EOS. It has benefited from momentum during 2025 but it has come down as defence excitement has come down.

The sector overall has been very hot and very momentum-driven. I'll be quite cautious about stocks in this sector going into 2026.

#3 - Ill-disciplined M&A

Matthew Booker: I don't want to pinpoint one stock, but I think some of the large-cap companies did some pretty dumb acquisitions in the past 6 to 12 months. Ill discipline crept into their management and at the board levels. 

They made big acquisitions with limited earnings, and they're paying high multiples for companies that haven't been around long. And that's risky in my view. Some of these acquisitions were offshore, and they brought debt onto the balance sheet. 

In some cases, these companies have never had debt on the balance sheet. So, just stupid acquisitions at the wrong time and wrong price can really bring you unstuck. I think some of the large-cap companies have done that in the past 12 months, but I don't want to pinpoint which ones they are. You can probably work it out.

#4 - Qoria (ASX: QOR)

Joel Fleming: I guess going to the breadths, there's been a lot of crowding in some of those technology names. A lot of people have made some fantastic money there. 

If I had to call out one, probably Qoria. That's one that stands out for me where I'm just not sure about the longer-term opportunity and the growth rates there. So that'd probably be the one that I would call out.

#5 - Tesla (NASDAQ: TSLA)

Alan Pullen: I'm really cautious on Tesla, and it comes down to the underlying quality and the valuation. This company is mainly being traded by retail investors at the moment, and they're trading more on speculation. 

Speculation about driverless cars, about robots - those are unproven business models at this stage. In terms of its existing business, EVs are struggling at the moment, losing share to China and so on. 

So this is a company trading on speculation, trading on hope, I would say, rather than fundamentals necessarily. And that trading multiple, more than 200 times earnings, just can't be justified by the fundamentals. So if that speculation changes, it could be in a lot of trouble. So be very careful about that one.

#6 - The banking sector

Ben Griffiths: The banking sector. We've seen some reasonable updates in the month of November from the banks. But they talked about net income pressure, they talked about difficulties in containing cost-to-income ratios. But I'm a little bit anxious that those stocks saw their highs in November and will start to trade lower.

We saw over the last six months record levels of international interest in Australian banks, and we saw record interest in Australian banks from domestic institutions. So I think that the sector's overbought and over-owned. 

Right now, we've got the Australian banks at the highest P/E ratios they've traded at in 10 years, whilst at the same time, they have the lowest cash dividend yields. So it's hard to marry the two scenarios. 

So those bank stocks I think are going to come under some pressure next year as the environment generally gets tougher. Balance sheet strength is okay, credit quality is okay, but the going gets a bit tougher for the banks.

I found it quite interesting in July, we had a comment from Ken Fisher, the legendary Texas investor, who said that if it's going to be Australia, it's got to be Commonwealth, which we thought was entertaining in the office because that was within 48 hours of the all-time high for CBA, at $190 a share and today it's trading well below that back at about around $150. 

So, I think the banks have been overbought. The banks have been a safe place for investors to hold out at, but we think that the performance starts to move away from the banking sector. The positioning is not right, and we think the underlying fundamentals are also not priced right. So we think, avoid the banks for calendar '26.

#7 - Major banks: ANZ (ASX: ANZ), NAB (ASX: NAB) and Westpac (ASX: WBC)

Tim Carleton: It's probably a little bit controversial, but it's one part of the market that nearly every retail investor is exposed to inside the Australian market. And it's not just one stock, it's a collection of stocks, and they are the major banks, in particular ANZ, NAB and Westpac. 

They've operated in a cosy oligopoly for a long time, and that's led the emerging competitive threat from Macquarie to really fly under the radar. I don't think it's going to fly under the radar for too much longer. 

They're 6.5% of the domestic mortgage market now. It's over 20% of Macquarie's operating profit that comes from banking and financial services, most of which comes from the mortgage market. 

They have been experiencing incredible growth over the last 12 months. So they've taken 21% of the domestic mortgage market growth in that 12-month period, and it's really accelerated from the 1st of July.

They're winning because they have a natural competitive advantage. They have a lower cost structure as a result of the cleanest tech stack and the fact that they don't have a branch network. 

It's a competitive advantage that the banks, I think, are going to really struggle to respond to. As a result, they're winning deposits really easily on the one side, by offering customers rates that are north of the cash rate, which makes it very difficult for the traditional banks to respond. 

On the other side, they're winning share quite comfortably because most Australians now get their mortgage through a mortgage broker, and that makes that channel really easy to disrupt, and that's exactly what Macquarie are doing. 

We expect that over the next 5 to 10 years, their share in the mortgage market's going to move north quite substantially, and that's going to create a very significant earnings headwind for the traditional four banks.

#8 - HP (NYSE: HPQ), Lenovo (HKG: 0992), Dell Technologies (NYSE: DELL) and ASUS (TPE: 2357)

Armina Rosenberg: Memory has been a clear beneficiary of the AI supercycle, which has helped the companies that make memory. But the companies that are being negatively impacted by that, are the OEM and PC server manufacturers. 

So that's stocks like HP, Dell, ASUS, and Lenovo - we are actually short all of those companies. The reason is that DRAM prices are up 150% since the 2023 trough, and certain components are up three or four times in the last couple of months. 

Memory is around 15% of the bill of materials for those players. And when you have one line item in your COGS like that going up materially, what you're seeing is gross margin compression.

Now, the work that we have done has shown that we could be shaving hundreds of basis points of those gross margins for every doubling in DRAM prices, which I think is definitely going to happen over the next little while. 

Even with things like mix shifts and price increases for consumers, they're still going to really struggle to keep those gross margins maintained. So they're my key shorts into 2026, that's HP, Lenovo, Dell and ASUS, all of the OEM manufacturers that need memory.

#9 - Transurban Group (ASX: TCL)

Anna Milne: So this is really based on our view on the macro. We believe that the long-duration assets will really struggle in the year ahead because of this change in market leadership that we're seeing from growth, momentum, and quality, to maybe more value in the shorter-duration names. 

An example of that is toll roads, and the biggest toll road in Australia is Transurban. We believe that it is really seen as a bond proxy, and there aren't really any fundamental catalysts. In a market rally, we don't know whether Transurban can keep up, so we don't believe it's a stock we need to own.

#10 - Droneshield (ASX: DRO)

Dr David Allen: For full disclosure, we have been short DroneShield since September. On our analysis, the company exhibits 17 of Plato’s Red Flags, placing it among the highest-risk stocks in our 10,000 stock universe. A few examples illustrate our concerns:

1. Insider behaviour: The simultaneous sale of shares by the CEO, chairman, and an independent director following a period of share-price weakness — and shortly after a misleading business-win announcement — is a significant governance red flag.
   
   
2. Board and management experience: We see a notable lack of deep defence industry experience across the board, including the chairman and CEO. In our experience, this absence of domain expertise has been a common feature in past corporate failures, including well-documented cases such as Theranos and, more recently, Boeing.
   
   
3. Intellectual property: Our analysis suggests DroneShield has a very limited patent portfolio, with most filings dating back several years. Aerospace and defence is a highly patent-intensive industry, and drone and counter-drone technologies are evolving rapidly. In that context, this lack of recent IP development is concerning.

It is also noteworthy that, in response to counter-drone systems, modern militaries have increasingly adopted fibre-optic-tethered drones, which bypass radio-frequency jamming altogether. Reports suggest that parts of Ukrainian battlefields are now criss-crossed with hundreds of kilometres of fibre-optic cable — to the extent that it has begun to impede troop movement. This evolution underscores how quickly the competitive landscape is shifting and raises further questions about the durability of DroneShield’s technology advantage.

What's your #1 stock to avoid for 2026?

Let us know in the comments section below.