The markets have been a bit hard to read so far this year. The economy is improving, inflation is rising because wages are rising. Companies are selling more goods and unemployment remains low.
Add to that, what looks to be a strong first-quarter earnings season … why are the major averages basically flat?
Some of it is the magic 3% number on 10-year Treasuries. It’s this point psychologically at least, that inflation officially is a part of the U.S. economy. That will cause traders to start moving out of some sectors and into others. Some are getting a head start.
Also, it has to do with caution over the Q1 numbers. Some feel that Q1, with the huge corporate tax break and subsequent share buybacks, earnings aren’t as powerful as they seem. And it may well be the high water mark for many companies for the year.
Given all this, and the fact that even good companies may have a tough time in the following quarters, you don’t want to be hanging on to bad stocks right now. And these nine triple-F stocks that can’t shake the blues are one set of bad stocks to avoid or sell.
Stocks to Sell: Colfax Corporation (CFX)
Colfax Corporation (NYSE:CFX) is a diversified industrial technology company that operates under the brands Howden and EASB.
Its quant, sales and fundamental grades are all Fs. That means, technically, fundamentally and as a function of sales, this company isn’t doing well.
And to that end, yesterday CFX released it Q1 numbers. The stock tanked. It’s off 5% over the past 5 days of trading. Analysts are cutting their growth estimates and stock performance.
And from the numbers, it looks like there’s more downside than upside at this point. This is not the kind of market you want to be rooting for an underdog to become a relative outperformer.
Stocks to Sell: Finisar (FNSR)
Finisar Corp (NASDAQ:FNSR) makes optical devices and subsystems for the data and telecom markets. And it’s one of the leaders in its sector.
Then why is it off 23% year to date?
One big reason is the semi-trade war the U.S. is in with China. There’s now a ban on component sales to China’s big telecom firms and that is the kind of news that disturbs Wall Street.
It’s not that FNSR will be significantly damaged, but the fact is, this kind of news brings uncertainty. The trade war could escalate. Traders become cautious and look for alternatives.
Again, it’s a good space, but there’s no reason to place a bet right now on a sector that is currently a chew toy in the U.S.-China trade war.
Stocks to Sell: Aerkomm (AKOM)
Aerkomm Inc (OTCMKTS:AKOM) is in-flight entertainment firm, focused on supplying airlines in Asia with connectivity and content.
The challenge is, it has a $200 million market cap, is U.S.-based, and has significant competition in the space. And it’s off 22% year to date.
AKOM stock is certainly a falling knife right now. And the trade war that’s brewing with China only makes this stock more unstable. If China decides it wants to promote a Chinese firm and push out U.S. firms, or if the U.S. decides it doesn’t want to share technology with Chinese carriers, AKOM isn’t big enough to survive.
Granted it is working with airlines beyond China. However, if you’re business is focused on Asia and you’re not in the biggest economy, growth is severely constrained.
Stocks to Sell: Liberty TripAdvisor (LTRPA)
Liberty TripAdvisor Holdings Inc (NASDAQ:LTRPA) is likely better known for its name brand service – TripAdvisor.
One of the challenges with this stock is that Liberty has been acquiring, merging, spinning off and reassembling companies under various names and ticker symbols for decades now.
That may be advantageous to the leadership, but it doesn’t really help shareholders. For example, LTRPA has been around since mid-2015 and has lost 74% over that time frame.
And once it plumbs its depths, management will likely find a way to spin it off into some other corporate entity and start again.
There’s no point in owning this stock in a good market, much less a volatile one.
Stocks to Sell: IMPAC (IMH)
IMPAC Mortgage Holdings Inc (NYSE:IMH) is in the mortgage business, which should be a bullish place to be right now.
However, the stock is off nearly 20% year to date. And there has been some controversy about the pricing of its preferred stock, which hasn’t helped its current standing.
Preferreds are usually used as a type of bond issuance without having to issue bonds. Plus, if a company fails, bondholders are paid first, then preferred holders, then common stockholders. This keeps IMH’s liability down while it raises money.
Also, IMH trades at under a $200 million market cap. With the real estate market in flux right now, taking a chance on a small lender that is having troubles pricing its preferred stock isn’t the best choice.
Stocks to Sell: Orchard Island (ORC)
Orchard Island Capital Inc (NYSE:ORC) may be throwing off a 15% dividend yield, but it’s off 22% year to date.
What’s more, it released its Q1 numbers about a week ago and they were not impressive. A net loss of $16 million compared to a $2.4 million gain in the same quarter a year ago.
Most of the other numbers were similarly uninspiring.
The company is structured as real estate investment trust (REIT) but it manages a portfolio of residential mortgage-backed securities rather than physical properties.
As a REIT, shareholders are considered business partners and they get paid their ‘profits’ in the form of dividends. While 15% annual dividend yield is impressive, the fact that the stock is already off 22% throws a wet blanket on the opportunity here.
Stocks to Sell: Energy (EGC)
Energy XXI Gulf Coast Inc (NYSE:EGC) is a small energy exploration and production (E&P) company that primarily operates offshore in the Gulf of Mexico, but also has properties in Texas and Louisiana.
There’s no doubt energy prices have started to rebound, but they’re not shooting through the roof. The U.S. economy is posting solid numbers, but we haven’t seen a major surge in demand yet.
Also, all the E&Ps in the various onshore shales are producing at better margins than ever before, so if you’re looking for an E&P, a better place to look is for those that are working the shales.
Offshore drilling is expensive and until oil gets closer to $100 a barrel, offshore E&Ps may be profitable, but not so much that their stockholders will benefit greatly.
Stocks to Sell: AutoWeb (AUTO)
AutoWeb Inc (NASDAQ:AUTO) is one of the pioneers in online automotive sales, launching its Autobytel.com website in the mid-1990s.
But the problems today are fundamentally twofold.
First, while it may have been the first, this is sector with very low barriers to entry. And now, there are scores of competitors including the dealerships and manufacturers themselves. Keeping up with that competition or acquiring it, is a very challenging model.
Second, car sales are slowing. And with interest rates rising, that is likely to continue.
AUTO is off almost 70% in the past 12 months and 52% in the past 3 months. This is a legacy firm that had a great idea 20 years ago, but didn’t try to dominate the market when it had a chance. Now it’s trying to play catch up and this isn’t the kind of market that will help.
Stocks to Sell: Pacific Ethanol (PEIX)
Pacific Ethanol Inc (NASDAQ:PEIX) is a small ethanol producer based in California.
This is one more industry that’s affected by the brewing U.S.-China trade war, although with PEIX off 54% in the past year, the problems go back further than this recent dust-up.
While the U.S. ups its tariff talk on imported steel, aluminum and other goods from China, China is targeting agricultural products from the U.S. Sorghum, soybeans and corn are particular targets.
Commodity prices are bouncing around because of this and as demand slackens, so do prices. That’s why President Trump suggested in mid-April that he may rescind restrictions on E15 (an ethanol product used for vehicles) and allow it to be made year round.
This would help boost tanking corn prices and keep the ethanol industry alive. While we wait, this is no time to bottom fish PEIX.
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.