Sometimes it’s hard to tell bad stocks from good stocks. Bad stocks will be in the right growth sectors. They may even be in rally mode for a quarter or two. Even more confusing, analysts will be split on the stocks — some saying a stock has plenty of headroom while other analysts call for fire and brimstone.
That’s why I run my own numbers — fundamental, technical and overall — to determine what works for me. This system helps me determine, using my proprietary criteria, whether a stock is a buy or a sell, overbought or oversold.
What I have compiled here are seven F-rated stocks to abandon immediately. There’s little doubt these stocks are running on borrowed time and their reckoning is much closer than their salvation.
Just as “you don’t make a profit until you sell,” is a fundamental truth in the markets, another key market axiom is, “it’s better to know what not to buy than what to buy.” These stocks are shining examples of that rule.
F-Rated Stocks to Sell: Ericsson (ERIC)
Telefonaktiebolaget LM Ericsson (NASDAQ:ERIC) used to be one of the big names in the early days of mobile phones. It was one of the top three companies both on the consumer side and the infrastructure side.
It was quite a player. Plus, it was a major player in China’s telecom market over a decade ago when China was getting almost as much attention as telecom. But like many after it, the dot-com bubble burst and the first generation telecom firms fell on hard times. Over the ensuing years, ERIC got out of the highly competitive consumer sector and stuck to its infrastructure efforts.
Then the financial crisis dealt another blow as its Asian work slowed, as did U.S. and Europe.
ERIC is now a shadow of itself. Business has been picking up, and it has rallied significantly since November 2016. But this isn’t a long-term relief rally. There are too many challenges for ERIC to overcome at this point, as competition grows in most of its business sectors.
F-Rated Stocks to Sell: DDR (DDR)
DDR Corp (NYSE:DDR) is a real estate investment trust (REIT) operating more than 300 properties (over 100 million square feet) across the U.S. and Puerto Rico. It’s tenants are some of the biggest names in retail and therein lies the challenge.
As you may have noticed the tradition brick and mortar retail sector is not doing very well recently. Some call it the “Amazon (NASDAQ:AMZN) effect,” but the real trend is simply a shift to more online commerce in general and more online price competition.
Remember to operate big stores, you have rent, utilities, employees and maintenance fees that all have to be added into the price of goods. Shipping out of warehouses or simply acting as a middleman between buyer and seller makes healthy margins much easier to maintain.
Because DDR is such a big player in this sector, it’s no surprise that its stock and its earnings are under siege now. And the thing is, things are going to get worse before they get better.
F-Rated Stocks to Sell: Cal-Maine (CALM)
Cal-Maine Foods Inc (NASDAQ:CALM) is one of the largest egg producers in the U.S. While you may not have heard the name, you likely have heard of some of the brands it sells under — Land o’ Lakes, Egg-Land’s Best, Farmhouse and 4-Grain.
The biggest challenge was the Avian Flu outbreak in 2015. Farmers had to destroy many of their hens and prices rose because of the lack of supply. But now that scenario has changed and oversupply is the issue.
Egg prices are at historic lows, but fortunately feed prices have also dropped, so CALM has been weathering the storm. But low feed prices won’t last as long as the low egg prices and that will put even more pressure on CALM.
What’s more, the growing “farm to table” movement is making it tougher for large, commercial eggs sales well. This confluence of events bode worse times for CALM in coming quarters. For example, in its fiscal third quarter ended in February, sales were down 32% year-over-year. That is a downward trend, not just a bad quarter.
F-Rated Stocks to Sell: Rowan (RDC)
Rowan Companies PLC (NYSE:RDC) is an offshore drilling service firm that operates around the world. The problem is, while there is a good recovery going on in the U.S. shale fields, that hasn’t translated into a similar robust recovery in offshore drilling. There remains an oversupply of oil and the global economy isn’t in recovery mode, so demand isn’t eating into supply as it would during a normal, healthy recovery.
This is why RDC is off nearly 35% year to date.
RDC is certainly one of the biggest and be offshore drillers out there, but this just isn’t the time to be in the sector. And considering the competition in the space, trying to bottom fish the sector could prove very dangerous if things don’t get much better.
Considering its large exposure in the Middle East, it’s going to be hard for RDC to make much headway as new oil production cuts are being implemented by the Kingdom and its OPEC — and non-OPEC — partners.
F-Rated Stocks to Sell: Infinera (INFN)
Infinera Corp. (NASDAQ:INFN) is the classic example of a company in the right sector, with the right technology, with plenty of Wall Street backing, but just not worth the risk all these fans keep ignoring.
INFN is an optical networking company, working on next-generation 5G technology for internet service providers, enterprise businesses and government. Again, that sounds fantastic! A smart company at the right place at the right time. Things are slightly more complicated than that, however.
Infinera has plenty of competition in the space from major, established players. It’s losing money — earnings for its latest quarter are negative, its margins are down (a bad sign for profitability) and revenue was off 28% year over year.
It supporters say 2017 is the year of the turnaround. But considering the slow recovery, slow capital expenditure growth and tight government budgets, it’s unlikely that any of that optimism turns to reality. And that disappointment will be taken out on INFN stock.
F-Rated Stocks to Sell: Vista (VSTO)
Vista Outdoor Inc (NASDAQ:VSTO) is an outdoor products company that has 40 brands in its stable. Many are highly visible names like Camelback, Bushnell, Bell, Federal Premium and Savage Arms.
Fundamentally, it has built a broad portfolio of names for hunters, campers and outdoor enthusiasts. The problem is, with much of its business weighted to firearms and ammunition, recent quarters have been tough.
You see, the election of President Donald Trump has been horrible for the arms industry. Under former President Obama, there was great concern that his administration was going to implement strict gun control measures. That sent gun owners into a buying frenzy.
Now that President Trump has been elected, all those gun owners have collectively breathed a sigh of relief, which means gun and ammunition sales have plummeted. Or as the CEO of VSTO said in it latest quarterly announcement: “We are experiencing an unprecedented decline in demand for ammunition and firearms following the presidential election and softness in the retail environment.”
Sales were down 5% for its latest quarter; gross profit was down 12% and expenses were up. Four more years of this will be disastrous.
F-Rated Stocks to Sell: Acceleron (XLRN)
Acceleron Pharma Inc (NASDAQ:XLRN) is a clinical biotech firm. That means, it doesn’t have any drugs on the market right now, but has a number of drug candidates moving through drug trials.
Its first drug out of trials is supposed to be sometime in the next month or so. While XLRN has a strong relationship with Celgene Corporation (NASDAQ:CELG), it is focused on drugs that are focused on serious and rare diseases.
This is a promising market sector, especially as the baby boomer generation starts hitting retirement age. It’s also encouraging that it has a powerful partner like CELG to support its research efforts. CELG is paying for the drug trial of the XLRN drug luspatercept as part of a collaborative agreement.
But with all the hope for these drugs, there’s no way to know how they will be accepted in the marketplace. One thing we do know is that revenue was off 80% year-over-year and that’s not good. Don’t buy the hype.
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