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.
Healthcare facility maintenance and food service provider Healthcare Services (HCSG) made our list of stocks to avoid after reporting horrific Q4 results. Earlier this week, the company reported Q4 earnings of $0.03 per diluted share, down from $0.37 in Q4 2020 and 57% lower than consensus expectations. What’s more, EBITDA missed the mark by 54%.
HCSG spending has been rising for the past few quarters and spiked more than 7% quarter over quarter in Q4. Management doesn’t expect the cost of service to come back to their historical target of 86% until the end of the year, and that seems like an optimistic estimate.
“Our fourth-quarter results reflect continued margin pressures resulting from workforce availability, inflation, and supply chain disruption. We remain actively engaged with our customers to modify our service agreements to adjust for the extraordinary inflation experienced during the second half of 2021, as well account for future inflation on a real-time basis,” said CEO Ted Wahl.
With occupancy rates at nursing facilities across the U.S. making a much slower recovery from the pandemic than expected, the industry has shed more than 220,000 jobs in the past year. Healthcare Services struggled to find footing in 2021, and the prospects for 2022 are not looking great.
HCSG has underperformed significantly when compared to the broader market. Over the past 12 months, the S&P 500 is 12.3% higher, while HCSG is lower by 48%. The pros on Wall Street give the stock a Hold rating. We’ll stay away until headwinds subside.
The announcement of a poorly timed CEO transition followed by dismal FY21 preliminary figures put biomedical instrument developer Berkeley Lights (BLI) at the top of our list this week.
It was revealed that Berkeley Lights is initiating a search for a new CEO as current CEO Eric Hobbs, Ph.D., will transition from chief executive officer and member of the board of directors to president of the Antibody Therapeutics business line. William Blair Analyst Brian Weinstein called the transition “unconventional” when he downgraded BLI to Market Perform from Outperform on Thursday. The announcement came in tandem with a peek into a less productive 2021 that Wall Street expects.
We’ll get a look at BLI’s full financial results for the fourth quarter and full-year 2021 in late February, but results based on management’s initial analysis are pointing to a steep revenue miss. The pros are looking for $90.85M in revenue for the full year. By Berkeley Lights preliminary calculations, the company expects just $84M-$84.5M in 2021 revenue. If that’s not bad enough, the company adjusted 2022 guidance below the consensus expectations. Stifel analyst Daniel Arias put it best – BLI “seems bound to be dead money for a while.” We’ll keep our distance pending further developments.
Last up on our list of stocks to avoid is Big Lots (BIG). The company’s challenges 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 significant 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 28% above where shares of Big Lots closed on Friday.
