Earnings Minefield: The 3 Stock Landmines to Avoid This Quarter


  • An uncertain business environment and stretched valuations in the U.S. equities market cast an unfavorable light.
  • Tesla (TSLA): Interest rates that are higher for longer will continue to dampen delivery and sales growth. 
  • SentinelOne (S): Macroeconomic uncertainty will likely make it difficult for SentinelOne to acquire new customers and increase growth.
  • Arch Resources (ARCH): Disruptions at the Baltimore port will disrupt a significant amount of Arch Resources’ business. 
Stocks to Avoid This Earnings Season - Earnings Minefield: The 3 Stock Landmines to Avoid This Quarter

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The past couple of weeks have been increasingly volatile for U.S. equities markets. The Nasdaq fell 3.55% last week, while the S&P500 had fallen 3.05%.

On the one hand, U.S. equities have likely reached a short-term peak, as trading multiples have become stretched. Yet on the other hand, U.S. Federal Reserve officials and Fed Chairman Jerome Powell are sending disappointing signals. Rates are likely to be higher for longer since inflation has shown little signs of coming down in recent months. These two considerations will make the second quarter’s earnings season even more interesting.

Public companies could find shares swinging not only on earnings hits or misses but also on any guidance updates. With macroeconomic volatility casting doubt on the general business outlook, these three stocks could be landmines to avoid this quarter.

Tesla (TSLA)

Elon Musk CEO and product architect of Tesla, Inc. (TSLA) Portrait on red background
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Undoubtedly, Tesla (NASDAQ:TSLA) is one of the most prominent players in the global electric vehicle (EV) market. But the U.S. EV manufacturer has continued to struggle throughout 2024. Shareholders should expect things to get worse for Tesla. One of the effects of higher interest rates for longer is that consumers are less likely to buy new cars with car notes being more expensive.

Amidst last week’s market rout, TSLA shares dipped more than 14%. And year-to-date (YTD), Tesla’s stock price has plummeted nearly 41%. For some investors, Tesla’s stock may be approaching “buy territory.” But investors shouldn’t rush into it, as the EV maker’s shares are not out of the woods yet. In March, Tesla’s vehicle deliveries dropped 8.5% year-over-year (YOY), falling quite short of Wall Street’s estimates.

So, it appears the EV maker’s grim guidance earlier this year happens to be coming into fruition. Deceleration in delivery and sales growth is affecting the entire EV market. Shareholders should expect underwhelming news in Q2 and perhaps even grimmer guidance than what the company issued at the beginning of the year.

All of these reasons make Tesla a stock to avoid this quarter.

SentinelOne (S)

The logo for SentinelOne (S) is seen on on an office building.
Source: Tada Images / Shutterstock.com

Investors would also do well to avoid smaller cybersecurity players that were once beacons of strong growth in the space. Higher rates will create an unstable business environment for new firms to grow and acquire new customers, which brings us to the next entry on our list.

SentinelOne (NYSE:S) is a global provider of cloud-based cybersecurity solutions, including its flagship product, Singularity Extended Detection and Response Platform. It leverages artificial intelligence (AI) to power cybersecurity solutions on an organization’s cloud network.

By using AI technology to create a human-like experience for the platform’s users, SentinelOne addresses a cost pain-point in cybersecurity. The AI capabilities helped shares skyrocket 88% in 2023 as the AI craze took over the broader tech equities market.

Also, SentinelOne’s Q4 earnings report underscored both intensive competition and an uncertain macroeconomic environment putting pressure on guidance figures. While fourth quarter financial figures came above Wall Street estimates, guidance for the company’s following fiscal year was sorely underwhelming. Shareholders should not expect better guidance.

Arch Resources (ARCH)

A top aerial view of an open pit mine industry, with a big yellow mining truck for coal
Source: Shutterstock

Arch Resources (NYSE:ARCH) produces and sells metallurgical products. In particular, Arch Resources operates several coal mining complexes in West Virginia, Wyoming and Colorado. While coal has gotten a bad rap in recent years, coal stocks soared in late 2023 as low multiples and ample cash flows attracted contrarian investors.

Unfortunately, the collapse of the Francis Scott Key bridge in Baltimore on March 26th has landed one of the East Coast’s most important port into disarray. The Baltimore port ships a significant amount of U.S. coal abroad. The U.S. Energy Information Association had previously predicted coal shipments would rise by about 1% in 2024 to 100.8M tons. But now, the agency expects exports to decline by 6% to 94.5M tons following the collapse of the bridge.

In 2023, Arch Resources generated $3.1 billion in revenue. And $1.8 billion, or nearly 56%, came from coal shipped overseas. To ship coal across the Atlantic, Arch Resources has to utilize the Baltimore port. Approximately, 70-75% of this seaborne coal goes through the port in Baltimore. Not only delays in its coal exports will continue. But it will likely have to report slimmer growth and margins in the short and medium terms.

While ARCH’s Q1 report might not be so much inflicted, it’s guidance for the year will probably take a significant hit.

On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.

Article printed from InvestorPlace Media, https://investorplace.com/2024/04/earnings-minefield-the-3-stock-landmines-to-avoid-this-quarter/.

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