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 important 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.
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.
Next up is aerospace and defense technology company, L3Harris Technologies Inc. (LHX). The company provides defense and commercial technologies across air, land, sea, space and cyber domain. In the past six weeks, LHX stock has seen a downward trend in fresh estimates and bled nearly 5% in the same time period. Some analysts think the stock has more to lose.
Among analysts who have recently downgraded the stock is Goldman Sachs’ Noah Poponak who downgraded the stock from Neutral to Sell. Poponak told investors in a note on Thursday, “A deceleration in the U.S. defense budget growth rate will likely translate to a multi-year deceleration in L3Harris sales.” He added, “Margin upside that was driven by merger integration has now likely played out, leaving less upside to margin estimates.” With the stock significantly outperforming its large cap defense peers over the last six months, the analyst no longer sees a “relative valuation gap” in the stock.
The company also recently lowered its 2021 guidance range. L3Harris currently expects to generate revenues of $18.1-$18.5 billion, compared with the prior guidance range $18.5-$18.9 billion, during 2021. The company’s 2021 earnings are now projected to be in the range of $12.80-$13.00 per share, compared with the previous guidance of $12.70-$13.00.
As the number 4 mobile carrier in the U.S. Cellular (USM) is not in the game of top tier service. While the three biggest carriers are spending billions on 5G upgrades, USM waits until they’re done and rents space on their systems, which puts them at the mercy of their larger counterparts when it comes to serving their customers.
Considering USM focuses on the more rural and ex-urban markets, it may be a while before USM customers can take advantage of 5G. The areas with sparse populations aren’t going to see 5G anytime soon because the large carriers won’t run 5G to rural areas until later in their buildouts.
USM is down 17% in the past 3 months and will remain on our sell list until 5G structure is more established and the company is able to provide the top-tier service that customers have grown accustomed to from the other providers.
