It’s fairly obvious that the energy sector isn’t the place to go looking for bargains — or even blue chips — right now.
That got us wondering what we would come up with if we ran our screens for non-energy stocks. And we’ve come up with seven stocks that are rotten to the core.
These stocks are F-rated across the board. Neither their momentum nor their fundamentals rate above an F. That’s not good, at all.
One is even from a sector that benefits from current slow-growth conditions but the stock in particular is about as stable as a small cap U.S. drilling company at this point. The market may be coming off its lows — some say that the turn took place on Feb. 11 — but that still doesn’t mean the rising trend will lift all stocks.
These stocks are on the brink of sinking to the bottom; they are avoids if you’re shopping, and sells if you’re holding.
Rotten Stocks to Sell: NRG Energy Inc (NRG)
One-Year Loss: 40%
The NRG Energy (NRG) story has been a testament to its own mission, but the former CEO who had begun building out the independent power producer from a coal and natural gas generated business to a renewable energy business, got stuck in midstream. And was ousted in January.
IPPs basically sell energy on the open market to either utilities or industry and make their money off the margins of their production. When natural gas prices tanked in 2015, along with oil prices, NRG had yet to convert over a majority of the business to renewable — solar and wind — and got hammered.
The costs to build its new energy resources were expensive and then its core business dried up. The stock lost 70% in 2015 and the CEO was forced out.
Now NRG is stuck between fossil fuels and a half built renewable business. That’s a bad place to be.
Rotten Stocks to Sell: Gerdau SA (ADR) (GGB)
One-Year Loss: 60%
Gerdau (GGB) is the poster child of bad fortunes, as the only industry worse off than energy producers is metals and industrial commodities companies. Even the best of them have been ravaged by slow global growth.
Now while developed economies aren’t doing great, emerging markets are faring far worse. And Brazil is arguably one of the worst right now, with a heady mix of economic collapse and political scandal.
So what does that have to do with GGB? Gerdau is a major steel operator … in Brazil.
What’s more, there is a possible police probe of GGB in its involvement in a tax evasion scandal.
Any one of these problems may be enough to shy away from a company, but when you hit the trifecta, it’s either pure masochism or a blatant death wish at play if you’re considering this company.
Rotten Stocks to Sell: Greenlight Capital Re, Ltd. (GLRE)
One-Year Loss: 31%
Greenlight Capital (GLRE) is a reinsurer with a portfolio managed by hedge fund celebrity David Einhorn.
Basically insurance companies use reinsurers to offload some of the risk of the policies they hold. This can become a very convoluted system to essentially set up a massive hedge fund without any real investors.
They can also be set up to back a hedge fund against downside risk, moving some more challenging assets to the reinsurer and off the hedge fund’s books.
This wasn’t the original purpose of reinsurers, but it’s what they have become. And in this market, they’re getting a very hard look from investors. The stock is off 32% in the past year.
While some see this as a great play to bottom fish an Einhorn-run fund, most others are concerned that it’s not going to take much of a push to send this one even further down.
Rotten Stocks to Sell: Arctic Cat Inc (ACAT)
One-Year Loss: 56%
Arctic Cat (ACAT) primarily makes snowmobiles. It’s an industry leader but there is plenty of competition. Competition that is much further along in diversifying their brands to include all-terrain and side-by-side utility vehicles.
Indeed, it’s a very competitive market, and while ACAT may be a big money name in snowmobiles (sleds), it doesn’t have the same impact in the ATV market.
What’s more, global warming is wreaking havoc in the winter sports sector, so the even demand in snowmobiles is declining.
That explains the 50% hit the stock has taken over the past 12 months, and it’s likely to be the cautionary tale for ACAT moving forward.
Rotten Stocks to Sell: Perceptron, Inc. (PRCP)
One-Year Loss: 56%
Perceptron (PRCP) manufactures quality control systems for the manufacturing industry, including the automotive, aerospace, power generation and heavy machinery sectors.
The problem is, the strongest economy in the world is having a recession in manufacturing, one that started a year ago and shows no sign of abating.
If no one buys big-ticket items and no one spends to upgrade infrastructure, there’s little demand for PRCP’s products. Belt tightening dictates that you keep the equipment you have and run it as long as you can before upgrading.
The stock has been hammered over the last 12 months, losing 56%. The fact that there’s no visible end to this global stagnation means PRCP doesn’t have much of a plan to get out of its current situation.
Rotten Stocks to Sell: Harte Hanks Inc (HHS)
One-Year Loss: 51%
In its glory days, back in 2005, Harte Hanks (HHS), was trading around 30. Now trading in the mid-threes, HHS could be so lucky.
It’s certainly been a downward journey for the past decade for this online marketer. Part of the reason is that online marketing is still a difficult business to figure out. For example, your return on investment or cost per customer are all moving targets as the Internet expands and changes.
Facebook (FB) went from struggling marketing platform to most dynamic online advertiser in the game in just a matter of years. Fortunes change quickly.
The problem is that this space is littered with competitors both large and small. That means a small company ($216 million market cap) has to be able to play with the big boys as well as take on the next-generation competition. It can get squeezed very quickly.
That’s why HHS is off 51% in the past 12 months and short interest on the stock just increased another 8% just this week.
Rotten Stocks to Sell: CDI Corp. (CDI)
One-Year Loss: 60%
CDI (CDI) is a niche employees search firm for the IT, engineering and management sectors.
This is not a booming sector, either in the U.S. or abroad. And CDI’s global exposure only adds to its problems right now. First, since most major economies are moribund at the moment, they’re not hiring. Second, because of the strong dollar, any revenue CDI does see is less than it would hope.
And when you’re a $100 million business (by market cap) with dozens of competitors of similar size — with some behemoths being one-stop shops for clients — you have a lot of competition in a space that’s rapidly running out of resources.
It’s no great surprise CDI is off 60% in the past 12 months. And it will be no surprise if it continues its downward path from here. In January it announced it was eliminating its dividend, which had been the only slightly sane reason to buy a rotten stock like this one.
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.