Seeking out great stocks to buy is essential, but many would say it’s even more 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 essential for 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.
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School bus maker Blue Bird Corp. (BLBD) could be the beneficiary of increased infrastructure spending in the years to come. However, ongoing supply chain disruptions and growing cost of materials have taken a toll and are expected to hold back 2022 production. BLBD makes our list of stocks to avoid after a dismal earnings call where the company reported misses on the top and bottom lines for the fourth quarter and lowered 2022 guidance.
The company cited supply chain snags as the cause for its Q4 production miss. Over 2,000 school bus deliveries were pushed back into fiscal 2022. Things could get worse before they get better for Bluebird. Sure, the company’s backlog is at a record high, but the 4,200 units currently in backlog are mostly at fixed price commitments that predate an 11% price increase for inflation, and there has been talk of at least one more price increase in 2022.
Roth Capital analyst Craig Irwin recently lowered the firm’s price target to $13 from $21 and kept a Neutral rating for BLBD. The analyst cited the “ugly Q4 results” and uncertainty around the expected infrastructure funding, due in part to heavy funding support for EV busses.
The good news for Blue Bird is that school bus demand has largely recovered to pre-pandemic levels, and order strength has returned. Until supply chain and material cost issues are in the rearview, we’ll stay away from this one.
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Leading medical technology company Medtronic Inc. (MTD) makes our list of stocks to avoid this week after receiving a warning letter from the FDA regarding its California facility, the headquarters for its diabetes business. The warning letter was issued following an inspection that concluded in July related to recalls of the MiniMed 600 series insulin infusion pump and a remote control device for MiniMed 508 and Paradigm pumps. The warning letter focuses on the inadequacy of specific medical device quality system requirements at the facility in the areas of risk assessment, corrective and preventive action, complaint handling, device recalls, and reporting of adverse events.
The letter was the main point of discussion on Thursday’s call with management and analysts. The company said it’s too soon to predict the warning letter resolution timeframe. The company provided a vague outlook for potential FY22 and 23 sales impact.
Following the call, JPMorgan analyst Robbie Marcus downgraded Medtronic to Neutral from Overweight with a price target of $105, down from $130. The analyst also removed the shares from the firm’s Analyst Focus List citing pipeline setbacks that “complicate” Medtronic’s turnaround. With setbacks to the company’s most significant pipeline products, renal denervation, 780G, and Hugo, management “has work to do to resolve these issues and prove to investors it can execute this turnaround story,” says the analyst. Marcus now views Medtronic shares as fairly valued.
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Last up on our list of stocks to avoid is Big Lots (BIG). Challenges that the company is facing include supply chain bottlenecks, increasing freight expenses, labor challenges, and competition in food-/consumables.
Earlier this month, the company reported an EPS miss and lowered guidance for Q4 and FY 2021 EPS to $5.70-$5.85 from $5.90-$6.05. “The impact of freight headwinds for the full year is expected to result in a 120 basis point decline in full-year gross margin compared to last year,” the company said.
Many of the Wall Street pros covering the stock foresee freight headwinds and volatile supply chain costs that will last into the new year and beyond. The stock has recently received numerous downgrades, including one from Piper Sandler analyst Peter Keith. The analyst downgraded Big Lots to Neutral from Overweight, saying in a note to clients that the economic environment was turning sour for the retailer.
“We see a trifecta of macro headwinds impacting fundamentals through the first half of 2022,” Keith wrote.
“These include the end of two years of stimulus check tailwinds in next year’s first half; ocean freight rates continue to intensify to all-time highs and are likely a gross-margin drag through the first half of 2022, and retail industry wage pressure seems unlikely to materially abate any time soon,” he added. The stock has been on a major descent, dropping almost 35% over the past six months. Piper Sandler lowered its price target on the stock to $50 per share from $60. That’s 22% above where shares of Big Lots closed on Friday.
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