Three Stocks to Avoid

Seeking out great stocks to buy is essential, but many would say it’s just as important to know which stocks to steer clear of.  A losing stock can eat away at your precious long-term returns.  So, figuring out which stocks to trim or get rid of is an integral part of proper portfolio maintenance.  

Even the best gardens need pruning, and our team has spotted a few stocks that seem like prime candidates for selling or avoiding.  Continue reading to find out which three stocks our team is staying away from this week.  

TripAdvisor’s (TRIP) stock price has been making the voyage downward since mid-March and doesn’t seem likely to make the return trip anytime soon.  Especially not after major hotel chains joined forces last month to force TripAdvisor to reverse course on its subscription to a cash-back instead of hotel discounts, seemingly taking the wind out of the company’s Tripadvisor Plus program.  

“This shift is a big departure for Tripadvisor, having previously pushed Tripadvisor Plus as offering ‘no brainers’ to customers and enticing them with best in class rates,” said Bernstein analyst Richard Clarke. “The new model makes sense and could offer good deals to customers, but will be in a competitive space with, Hopper and Revolut also offering cash back/credit on bookings with also charging a $99 fee.  This might ultimately be a test if Tripadvisor Plus can be a full-service travel subscription offer, not just a discount club.”

Earlier this week, Mizuho analyst James Lee lowered the firm’s price target on TripAdvisor to $42 from $50, citing the disruption in travel trends in Q3 by new delta cases, which caused student travel restrictions and consumer hesitancy heading into the October holiday.  The analyst believes the travel recovery story has been pushed back to fiscal 2022 instead of the second half of 2021.

Recent heavy put volume for TRIP is another cause for concern and could indicate that investors are becoming more bearish on the stock ahead of the November 4th earnings call.  The most active are those that expire on October 29th with a strike price of $30.  The Put/Call Ratio is 4.10.  The consensus analyst recommendation is to Hold TRIP stock. We’ll be keeping an eye on the stock as the next earnings release nears, but we’ll stay away until headwinds clear.  

Offshore oil rig service provider Transocean (RIG) suffered badly in the wake of 2020’s economic shutdown and travel bans (when crude prices plummeted to all-time lows), but the company was in bad shape long before that.  In 2019 prior to the pandemic, Transocean reported an EPS loss of $1.45.  Bank of America analyst Mike Sabella projects that losses will continue through at least 2023.

He’s projecting Transocean will finish 2021 with about $450 million in liquidity, and the company will generate negative $50 million in 2022 free cash flow.  At the same time, Transocean has more than $8 billion in debt and $600 million in 2022 debt maturities.  Bank of America has an Underperform rating and $1 price target for Transocean.

The current consensus among the 14 analysts offering recommendations is to Hold RIG.  The stock has 9 Hold ratings, 5 Sell ratings and no Buy ratings.  A median target of $2.50 represents a 33% decrease from the most recent price.  

For the third quarter of 2021, this offshore drilling contractor expects adjusted contract drilling revenues of $670 million, indicating growth from the sequentially reported figure of $656 million.  It expects third-quarter operations and maintenance expenses of $427 million.  Its G&A expenses are expected to be $40 million while capital expenditure including capitalized interest is estimated to be $90 million.

Blackberry (BB) stock has been a rollercoaster in 2021, thanks to the company’s meme stock status.  An insane spike in January sent the share price rocketing more than 200%, from less than $8 a share to more than $28 a share in less than 2 weeks.  After an embarrassing security scare (and attempted cover-up), BB settled at a price around $10, which is considerably less than its $25.10 close from January 27th.  Considering its meme stock status, wild price action would not be surprising, but a closer look reveals a bleak picture for BB in the long term.  

In terms of forward EV/EBITDA, BB is currently trading at 285.29, which is 1,560.9% higher than the 17.18 industry average. Its 9.33 forward Price/Sales multiple is 128.5% higher than the 4.09 industry average.

BB’s revenue declined 32% year-over-year to $175 million in its second fiscal quarter, which ended August 31st. Its operating loss stood at $74 million, while its net loss and loss per share came in at $144 million and $0.25, respectively.

Analysts expect BB’s revenues to decline 14.6% year-over-year to $785.14 million in the current year. The company’s EPS is expected to remain negative until at least 2023.