The United States stock market continues to chug along, hitting new highs. The Federal Reserve is allowing interest rates to fall. Consumers are keeping the economy going.
Why worry about bad stocks when it seems that the end of the year is going to be as strong as the rest of the year has been? Well, the months of September and October are a crucial earnings season. And it’s not as much about what these stocks do in the third quarter as much as it’s about what they predict for future quarters.
Given the disarray in world markets — think trade wars, Brexit a potential recession, etc — this remains a very volatile time.
The news of air strikes on an oil processing plant in Saudi Arabia this past weekend is a prime example. If initial trade talks break down next week between China and the U.S., that could be another trigger. Or, what if Iran continues to challenge the uneasy peace in the Middle East?
The point is, you want bulletproof stocks right now that can endure a downside plunge and recover quickly, with plenty of opportunity moving forward. At Growth Investor we’re leaving these seven stocks on the shelf, as my Portfolio Grader says they are triple-“F” rated.
Keep reading and you’ll see why.
Stocks to Sell: Fluor (FLR)
Fluor Corp (NYSE:FLR) was founded in 1912 and has become one of the largest engineering and construction companies in the U.S., with projects and a reputation that spans the world.
On the upside, the company has seen some crazy times over the past century and has found a way to survive and grow.
But this isn’t a good time. The company reported massive back-to-back quarterly losses — when analysts were expecting profits — and finally withdrew its guidance for the rest of 2019.
That’s not encouraging. It means either the company had no idea how bad things were, or it did and never bothered to share that with the analysts. Neither is an acceptable or comforting option.
It also means that going forward, there’s no way to know what happens next. And that’s pretty much what the CEO said. That’s pretty remarkable, given that economic data on construction, like housing stats and building permits, have been strong — making the industry one of my key themes at Growth Investor. Only the best will do, though.
Tutor Perini (TPC)
Tutor Perini (NYSE:TPC) is another infrastructure construction company, but it focuses primarily on U.S. government projects and infrastructure.
That should tell you all you need to know about why it made this list. With the annual U.S. deficit nearing $1 trillion — and President Donald Trump threatening to push for refinancing — government construction spending isn’t in the cards.
And as far as infrastructure goes, unless it’s the states providing funds, there’s little happening in Washington to get this moving. It would be nice to think that 2020 election politics may break the ice, but it’s highly unlikely.
TPC stock is struggling and racking up losses. Some major brokerage houses have cut its price target. And the stock is off 37% in the past year.
Another bad quarter or some shock to the U.S. economy would drop it in a heartbeat. Tutor Perini stock is not worth the risk when there are so many better choices out there.
Verso (NYSE:VRS) seems to have been a quixotic company from the start. It is a paper company that launched in 2006 — right at the heart of the digital revolution.
Now that’s not to say that printing companies are dinosaurs, but printing certainly isn’t what it used to be. And that simple statement also became clear to Verso when it declared bankruptcy three years ago.
Printing is a tough business in a good economy. It’s even tougher in a sluggish one.
VRS stock is off 61% in the past year and 37% in the past three months. This is a classic example of a falling knife. And you shouldn’t try to catch falling knives.
Even if its packing division gets a bump or there’s more demand as we approach the holidays, there’s way too much work to do to keep this company moving along at its current size. I’m looking for far better growth prospects (and income) for my buy list.
Fiesta Restaurant Group (FRGI)
Fiesta Restaurant Group (NASDAQ:FRGI) has two main franchises: Pollo Tropical and Taco Cabana. Restaurants of the latter brand can be found in major cities across Texas. Those of the former are all located in southern Florida.
The biggest challenge right now for FRGI is its competition. Certainly more people eat out these days, especially younger generations. But the challenge is scaling the business to move on beyond Pollo Tropical and Taco Cabana’s current locations.
And that doesn’t seem to be happening. Recently, FRGI had to close its Atlanta, Georgia restaurants because the nine locations were losing money. This also means Fiesta Restaurant Group’s ideas are hard to share outside of familiar audiences.
Its $287 million market cap also makes it tough to compete against well-known national brands like Chipotle Mexican Grill (NYSE:CMG). And local restaurants also make competition tough.
The stock is off 62% in the past year. There are far better restaurant stocks for my money.
Conduent (NYSE:CNDT) was founded in New Jersey — and in 2017 spun off from Xerox (NYSE:XRX). While the long history of its parent company may be proof of its durability over the past 113 years, it’s hard to understand what Conduent does by going to its website.
Fundamentally, CNDT works with governments and companies to build digital platforms. These platforms are then used to manage intensive transaction processing as well as analytics and automation.
Perhaps that’s the challenge CNDT is now facing. That pretty much describes a whole slew of organizations.
And you can see this in its numbers. In the second quarter, CNDT stock lost $1 billion compared to an $11 million gain last year. Revenue also fell during the quarter. And, to top it off, the company said the loss was due to it losing contracts.
Ashok Vemuri stepped down as CEO as a result, but now Conduent has suspended the search for a new permanent CEO. Cliff Skelton is serving in the position in the interim. None of this looks encouraging.
Nautilus (NYSE:NLS) is a fitness equipment company. Back in the day, Nautilus was one of the top brands in its market. It was a pioneer in launching the specific, muscle-focused equipment you see today in most gyms.
This sector has grown alongside various new free weight regimens. And NLS has continued to expand its portfolio. It now owns the Bowflex, Octane Fitness, Schwinn Fitness and Universal brands, as well as others.
Unfortunately, the newest trends are yoga and cross-fit, which don’t require equipment. These trends are more of a “lifestyle” appeal, and I actually prefer to cash in with a niche retail stock for Growth Investor. Meanwhile, new gyms are competing for lower price points on memberships, which means they’re not buying as much equipment.
Basically, most of the fitness trends today are working against NLS. And that shows in the stock price. It’s off 87.6% year-to-date and 90% in the past year. The market cap is a mere $41 million at this point. It’s not going to pump your portfolio up.
NeuroMetrix (NASDAQ:NURO) is in a $635 billion industry — chronic pain management. Its unique spin is that it uses neurostimulation and digital techniques to manage pain without the use of drugs. And this treatment addresses everything from chronic pain to sleep disorders to diabetes.
NeuroMetrix’s two most promising devices are Quell, a U.S. Food and Drug Administration approved wearable for chronic pain management and Health Cloud, a pain management database that is becoming one of the largest of its kind.
It all sounds promising. But the stock has a market cap just shy of $4 million at this point. And it’s off 26% in the past three months, 48% year-to-date and 71% in the past 12 months.
While this may be the future — or a future — of chronic pain management, right now the stock is not looking good. Perhaps that’s a reflection on the products or perhaps it’s a statement about management. Either way, it’s not worth sticking around to find out.
Having spent time on Wall Street, big institutional investors quickly learn that you need dividends to grow a portfolio over time, and I think that’s why there’s a clear preference for them. The income really helps smooth over the rough patches.
Dividend growth stocks are especially important today — when the global bond market is just going haywire. And even the 30-year U.S. Treasury can’t be relied upon for good yield anymore. Recently, its yield dropped below 2% for the first time ever.