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6 Stocks Vulnerable To 20% Plunges Amid The Bull Rebound

The stock market's robust 14.7% gain thus far in 2019, as measured by the S&P 500 Index (SPX) at today's open, has lifted a large number of stocks, and many investors forecast more gains as the economy strengthens. Goldman Sachs says, "real GDP growth will rebound to 3.0% in 2Q from the 0.7% pace in 1Q that encompasses the 34-day federal government shutdown," according to the firm's latest US Weekly Kickstart report.

However, the rising market also is pulling along stocks that may turn into big losers, beset by industry-specific and company-specific problems. Goldman's latest US Quarterly Chartbook report identifies 40 stocks that their analysts expect to fall significantly, with these six topping the list with declines of nearly 20% or more: Juniper Networks Inc. (JNPR), Church & Dwight Co. Inc. (CHD), Clorox Co. (CLX), Realty Income Corp. (O), Ventas Inc. (VTR), and The Hershey Co. (HSY).

6 Stocks Poised For Steep Declines

(Downside to Goldman Sachs Price Target)

  • Juniper Networks, -25.7%
  • Church & Dwight, -25.5%
  • Clorox, -25.4%
  • Realty Income, -23.9%
  • Ventas, -19.8%
  • Hershey, -19.8%

Source: Goldman Sachs US Quarterly Chartbook, pricing as of March 29, 2019.

Significance For Investors

While consensus estimates see aggregate EPS for the S&P 500 dropping by 2% year-over-year for 1Q 2019, according to Goldman, the most vulnerable companies may face even steeper profit and sales declines for the quarter and the year as they face a variety of headwinds. These could weigh on their stock prices.

To illustrate the negative forces that are weighing on the six stocks listed above, we look more closely at Juniper, Clorox, and Hershey.

Juniper Networks designs and sells products and services that are used to manage computer networks, include those supporting cloud services. This is "a very dynamic industry" whose players are "always looking for the most cost-effective, and cost efficient, architectures," as Juniper CEO Rami Rahim told Barron's.

Many of these customers indeed are switching to lower-cost products, and "a high degree of customer concentration in our business" means that Rahim and Juniper have a customer base that can influence prices. Indeed, Juniper has seen revenues decline in the face of increased competition from rivals such as Cisco Systems Inc. (CSCO) and the decision by large customers such as Amazon.com Inc. (AMZN) to replace Juniper gear with other alternatives, Seeking Alpha reports.

Clorox has expanded from its base in laundry bleach to offer a variety of household, food, and personal care products. However, consumer staples companies such as Clorox "have struggled to adapt changing consumer preferences for local and greener alternatives, while lumpy growth in emerging markets and the strong dollar has hurt multinational players," another Barron's article observes.

Nonetheless, Clorox beat EPS estimates for its most recent fiscal quarter by 7.7%, and it estimates that organic sales are rising by 2% to 4%. Bonnie Herzog, an analyst with Wells Fargo, is much more upbeat than Goldman about the stock, rating it a market perform.

Hershey, the well-known chocolate maker, is facing increased shipping costs and growing competition that are threatening its market share. North American sales were down by 0.3% in 4Q 2018, per CNBC.

Looking Ahead

Investors may face downside risk with other companies on Goldman's list, as well. It includes 16 stocks that the firm forecasts will drop by 10% or more. If GDP continues to slow and if profit margins continue to contract, many more stocks could be at risk of sharp pullbacks.