As earnings season progresses it is exciting to see our stocks powering ahead with excellent sales and earnings growth. It is also a blast to find new stocks with the type of superior fundamentals that can lead the market higher.
But as much as I enjoy finding winning stocks, it’s also important to avoid those that are performing poorly and being downgraded by the analysts (and Portfolio Grader). These are the stocks that can hurt your performance and keep your portfolio from blowing away the market returns. Many investors have a temptation to bottom-fish these loser stocks — but such an activity could be disastrous.
Unisys (UIS) is a great example of a company that is just not performing well right now. The information technology company has reported huge earnings disappointments in three of the past four quarters — including this most recent quarter. Unisys reported profits of just $0.11 a share for the second quarter, well below last year’s $0.91 and the consensus estimate of $0.40 a share. Sales dropped by more than 6%.
Analysts have been dropping their expectations for the next quarter and full year as well. Portfolio Grader has been tracking the decline in fundamentals at Unisys and downgraded it to a “sell” in May and last week dropped the stock to a “strong sell.”
A lot of people thought Angie’s List (ANGI) might be the next big thing on the Internet. The idea of a local directory and reviews of local professionals for everything from healthcare to automotive services seems like a fantastic idea. Unfortunately that idea has not yet delivered the type of powerful growth a stock needs to be favorably ranked by Portfolio Grader.
Angie’s List has not yet turned a profit and has consistently fallen short of expectations. The company bet heavily on its “Big Deals” promotional offers of deeply discounted services, and the program has been a dud. The stock was downgraded to a “D” back in March and two weeks ago was downgraded all the way to an “F” as the company continues to report poor results. The stock is a “strong sell” at the current price.
Many investors had hoped that the homebuilders would see a renewed surge in activity in the second quarter as weather conditions improved. Unfortunately that has not happened yet, as both existing- and new-home sales have been below year-ago levels.
DR Horton (DHI) is one of the builders that had high hopes going into the quarter. The builder reported dismal earnings of $0.32 a share, below last year’s results of $0.42 a share and well behind the analyst expectations of $0.49. Analysts have been downgrading the stock and Portfolio Grader also downgraded the stock to a “D” ranking last week. Shares of the homebuilder are a sell at current prices.
It’s not enough to find the winners in the stock market. To continually outperform the averages you also have to avoid the losers and resist trying to bottom-fish stocks with poor fundamentals.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.