“I’m involved in the stock market, which is fun and, sometimes, very painful” ­– Regis Philbin.

Indeed, the 7% plunge that the Chinese stock market suffered on Jan 4, 2016 brought back agonizing memories of last year’s Black Monday on the Shanghai Stock Exchange. On Aug 24, 2015, the stock market there crumbled, the impact of which persisted over a stretch of three weeks.

In fact, this time not only did the Chinese investors suffer – stakeholders all over the world felt the heat of this market slump. This triggered a wave of sell-offs across the global stock market as anticipation of a further downturn in China and fresh geopolitical tensions in the Middle East spooked investors.

Evidently, while the Dow Jones Industrial Average Index (DIA) crashed more than 400 points on marking Dow’s worst opening to a new year since 2008, the tech-heavy Nasdaq composite plunged 104 points on the same day.

How to Brace Yourself?

A still-bumpy global scenario leaves us with the billion-dollar question: Where should investors put in their money? With a wave of pessimism sweeping the market and shaky investors further terrorized with RBS’ forecast that the Wall Street stocks might fall by 10%; let us set our analysis with an alternative view. We wish to warn our readers to exercise caution before investing in sectors that have either completely crashed or are exhibiting frail fundamentals post the fresh China market downslide.

Based on a list published by Bloomberg that depicts each sector’s individual year-to-date performance, we hereby select three sectors that rest at the bottom, namely Basic Materials, Energy and Healthcare. Each of these sectors has dropped more than 9% since Jan 4. We discuss below the current trends prevalent in these sectors and a few underperformers in each from which investors should maintain a distance.

Basic Materials: The basic materials sector, which includes stocks that deal in mining and refining of metals, chemical producers and forestry products, generally moves in tandem with economic business cycles. In the face of another anticipated wave of liquidation across the global stock market on further devaluation of the Chinese currency, a downward business cycle is currently looming and the impact is expected to continue, at least in the short term.

Consequently, the basic materials sector has been performing on a sluggish note since the beginning of 2016, as is evident from the 11.1% slump witnessed in its performance.

We hereby highlight two of the worst performing stocks in this space, that you should clearly stay away from. These stocks hold a Zacks Rank #4 (Sell) or 5 (Strong Sell), a negative EPS growth estimate and yield negative return on investment (ROI). Moreover, the negative 5-year historical sales growth rate of these stocks reflects their dismal long-term performance.

Compania de Minas Buenaventura S.A.A. (BVN - Snapshot Report) has:

• Zacks Rank #4
• Estimated EPS growth rate of -533.3%
• ROI of -4.3%
• 5-year historical sales growth of -5.6%.

Intrepid Potash, Inc. (IPI - Snapshot Report) has:

• Zacks Rank #5
• Estimated EPS growth rate of -33.8%
• ROI of -0.21%
• 5-year historical sales growth of -2.1%

Energy: The energy sector has been going through a rough patch for quite some time now, hurt by weak oil prices. As per the recently released Short-Term Energy Outlook (STEO), crude oil prices are estimated to remain low as supply will likely continue to outpace demand in 2016 and more crude oil will be placed in storage. This in turn will affect the stocks in the energy sector.

Moreover, this sector has always remained sensitive to geopolitical events as they significantly influence the price of oil. If the recent crisis that has stirred up therein worsens, it might have an adverse effect on stocks of these sectors as well. This crisis, along with the recent turbulence in the global stock market, might have made investors conservative with regard to spending money in this space, as is evident from the 10.9% slump in the sector’s performance.

Here too, we point out two stocks (based on the same criteria as above) that you should strictly avoid at the moment.

CHC Group Ltd. (HELI - Snapshot Report) has:

• Zacks Rank #4
• Estimated EPS growth rate of -9.9%
• ROI of -5.1%
• 5-year historical sales growth of -8.9%

Mitcham Industries Inc. (MIND - Snapshot Report) has:

• Zacks Rank #4
• Estimated EPS growth rate of -293.3%
• ROI of -9%
• 5-year historical sales growth of -6.4%.

Healthcare: Investors generally bank on secure sectors that remain less sensitive to business cycle fluctuations, Healthcare being one of them. However the 9.5% plunge in this sector’s year-to-date performance says otherwise and we also are unable to showcase any positive catalyst right now that might indicate any near term rebound in its performance.

The China market crash of 2016 will definitely hamper the prospects of healthcare companies that have invested largely in China, falling prey to the projected $1 trillion worth (by 2020) of the healthcare market therein. Apart from that,with 2016 being the year of Presidential elections in the U.S., industry issues such as drug pricing will be in the spotlight.

Finally, prospering health technology comes with the rise of cyber security threats. Data shows that, 40% of consumers would abandon or hesitate using a health organization if it is hacked. More than 50% of consumers would avoid, or be wary of using a connected medical device if a data breach was reported for it. Such deterrents also pose a considerable threat to the sector.

Four stocks in the healthcare space that investors should steer clear from are:

Alnylam Pharmaceuticals, Inc. (ALNY - Analyst Report) has:

• Zacks Rank #4
• Estimated EPS growth rate of -18.4%
• ROI of -17.1%
• 5-year historical sales growth of -15.6%

Ocera Therapeutics, Inc. (OCRX - Snapshot Report) has:

• Zacks Rank #4
• Estimated EPS growth rate of -8.5%  
• ROI of -56%
• 5-year historical sales growth of -62.5%.

The Bottom Line

The economy is currently heading towards an unclear direction with, two opposite forces affecting the market at a time: a better employment scenario in the U.S. with higher purchasing power of consumers and the weak manufacturing sector. So, it is rather impossible to predict definitely whether the stock market scenario will improve in the days ahead or not, and even if it does, whether the good times are here to stay. However, we believe the aforementioned stocks will continue to exhibit weak fundamentals for some time ahead and hence are best avoided for now.