Three Stocks to Avoid for the Week of July 4th

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. 

There’s no question that electric vehicles are the future, but investors looking for bargains during the market meltdown would be wise to steer clear of third-party companies specializing in EV charging stations like Blink Charging (BLNK). It’s much too soon to predict winners in this cutthroat niche of the EV industry mainly because it’s still unclear if third-party charging kiosks will ever be profitable.  

Analysts don’t see Blink becoming profitable before 2026. By then, the company will likely be looking at a much different landscape. A lot can change in three and a half years. From the current vantage point, the near future looks murky for the entire EV industry. Earlier this month, Elon Musk announced that Tesla, the largest EV maker, would be laying off 10% of its workforce this year amid supply chain pressure and restricted production at its Shanghai factory.  

Blink Charging shares have fallen 70% since peaking in early 2021 and are 41% lower year-to-date, but the stock is still trading at 28.5 times, trailing twelve-month revenue. For perspective, the price-to-sales ratio for the S&P 500 index as of June 1 was roughly 3. And this was also way higher than what the ratio has been historically. The current consensus is to Hold Blink stock. We’ll stick to the sidelines on third-party EV charging companies until EV industry headwinds subside.  

The railroad industry faces several challenges that threaten operating ratios across the entire sector, including a labor shortage, capacity constraints, and service issues. On Wednesday, the Association of American Railroads (AAR) reported a 3% year-over-year decline in weekly rail traffic, continuing a 10-week losing streak. These hefty cost headwinds will likely weigh heavily on Union Pacific Corp (UNP) and delay visions of recovery in the second half of the year.  

Several analysts have downgraded UNP in recent weeks on execution concerns against a challenging macroeconomic backdrop moving into the second half of the year, including Evercore ISI analyst Jonathan Chappell. The analyst downgraded the stock to In-Line from Outperform, citing Q2 volume shortfalls and what he sees as a likely-to-be lower guidance reset.  

Though rail equities still appear to offer relative safe-haven status, the cyclical sector is not immune to slowdowns in economic activity. UNP’s share price is down 21% over the past three months. The downward momentum is likely to continue until headwinds abate.  

Rising interest rates and a cooling off of the red-hot housing market creates a challenging backdrop for mortgage provider Rocket Companies (RKT).   Mortgage interest rates have increased about 240 basis points year to date, and the average rate for a 30-year mortgage is currently 5.61% versus an average of 3.09% in 2021. This is likely to drive origination volumes lower and could also lead to elevated competition as mortgage originators compete in a smaller market. 

Rocket has struggled to meet expectations for the past few quarters as it laps 2021’s blockbuster numbers. The company recently came out with adjusted quarterly earnings of $0.15 per share, missing the consensus estimate of $0.19 per share. This compares to earnings of $1.14 per share a year ago. Revenue was reported as $2.67B, topping consensus expectations of $2.21B.

Rocket’s been underperforming the broader market so far in 2022. RKT shares have lost about 48% since the beginning of the year versus the S&P 500’s decline of 20%. The pros on Wall Street say to Hold RKT. Of 17 analysts offering recommendations, 2 rate the stock a Buy, 13 rate it a Hold, and 2 say to Sell RKT shares.