There is always a temptation to bottom fish among stocks that have fared poorly over the last year or so. After all what goes down has to come up , right?The truth is that that while the stock may eventually recover, there is a great chance that it will go a lot lower before things get any better. This is especially true if the stock is falling as a result of poor earnings growth and low investor expectations.
Earnings are the ultimate driver of stock prices, and if the earnings are in decline, odds are the stock will stay in that mode as well until conditions improve. Investors should avoid stocks that have poor earnings as odds are they will fall far behind the rest of the market in 2015.
Here are three stocks that investors should definitely not bottom fish for:
Carbo Ceramics Inc. (CRR)
Carbo Ceramics Inc. (CRR) is a great example of a stock that should be avoided. CRR makes ceramic- and resin-coated sand propellants used in the fracking process for oil and gas.
Carbo Ceramics is being hurt by the lower oil prices we are seeing, but CRR was starting to struggle even before the big tumble in oil prices. The business is increasingly competitive and many drillers have been switching to lower-cost sand to use in the hydraulic fracking process.
Earnings have fallen 20% so far this year, and in the last quarter, Carbo Ceramics’ profits were down more than 50% year over year. If oil and gas prices stay anywhere near current levels, it will get a lot worse for Carbo Ceramics as drilling activity will slow dramatically.
Analysts are currently expecting another 28% decline in CRR stock earnings for 2015, and low oil prices would lead to an even greater decline. Carbo Ceramics stock was downgraded to a F back in October, and CRR still a “strong sell.”
Marathon Oil Corporation (MRO)
Marathon Oil Corporation (MRO) explores for oil and gas all over the world, and it is feeling the negative effect of low oil prices as well. Marathon Oil has operations in North American shale fields and Canadian oil sand fields that could see substantial difficulties should oil prices fail to recover in 2015.
As bad as the news has been for Marathon Oil the past few weeks, it is important to understand that MRO earnings have been weak for several years now are just flat for 2014 so far. Analysts expect MRO stock to get worse and are currently anticipating a 50% drop in profits in 2015.
In the most recent quarter, MRO sales dropped by about 5% while bottom line profits dropped by 19% compared to last year. This week Portfolio Grader dropped shares of Marathon Oil to a F grade, and MRO stock is a “strong sell” right now.
K12 Inc. (LRN)
K12 Inc. (LRN) is a technology-based education company that offers proprietary curriculum, software systems and education services for help kids in grades K-12 learn. K12 has been hurt as many of the students in its online schools and kids home schooled using its programs have had poor test scores. and enrollments have declined.
LRN stock earnings are down 30% this year and analysts expect another devastating 45% plunge in the bottom line numbers in 2015. K12 is being threatened with contract cancellations in several states unless test scores improve, which is likely going to hurt its sales effort.
In its early days, K12 had backing and support from folks like Oracle Corporation (ORCL) CEO Larry Ellison, Michael Milken and his brother Lowell and Former Florida Governor Jeb Bush.
So far, K12 has fallen short of its original promise, and Portfolio Grader downgraded LRN stock to a F this month. K12 stock is a “strong sell” as we approach the new year.
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.