Don't Hold On: 3 Stocks With Disappointing Sentiment to Sell in April
The Federal Reserve's policies are increasing the likelihood of a recession in the near future. It may be best to avoid investing in weak companies.
The Fed's tightening of monetary policy to lower inflation to its target level increases the chances of a recession in this year. It may be wise to avoid stocks with a poor fundamental outlook, such as Desktop Metal (DM), Customers Bancorp(CUBI) and Conn's(CONN), which have a negative analyst's sentiment. Continue reading.
In light of the growing concerns about a possible recession and a sluggish economic climate, I believe it's best to avoid stocks with a bearish analyst sentiment, such as Desktop Metal, Inc., Inc., Customers Bancorp, Inc., Inc., and Conn's, Inc.
Raphael Bostic, president of the Atlanta Federal Reserve, stated on Tuesday that they would only approve one additional rate increase before pausing for a period to evaluate the effects of tightening policy on the economy.
JPMorgan conducted a survey among investors and found that almost 90% of the respondents expect a recession to occur by the first quarter 2024.
The note published the key takeaways of JPMorgan's Investor Seminar. It stated that "we do not expect inflation to provide the Fed with an option for easing prior to a recession taking hold." We maintain a bias towards a global recession starting later and with higher rates at the terminal in [developed markets] as well as a more synchronized downturn.
The consumer sentiment index rose by just two points in April, a small increase from March. The sentiment is around 3% lower compared to a year earlier, but 27% higher than the all-time high set in June last year. Consumers did not perceive any significant changes to the economic climate in April.
Let's talk about the stocks listed above in detail.
Desktop Metal, Inc.
DM sells and manufactures additive manufacturing systems for designers, engineers, and manufacturers throughout the Americas, Europe and the Middle East.
The 2.77 multiple of EV/Sales that DM has set for the future is 70.8% more than the industry average of 1.62. DM's forward Price/Sales is 2.97x which is 124.6% more than the average industry of 1.32x.
DM's ROTC for the trailing 12 months is negative 13.74 %, which is lower than 7.05% average. Its EBIT margin for the trailing 12 months is negative 101.61%, which is lower than industry average of 9.69%.
Total operating expenses of DM for the year ending December 31, 2022 increased by 239.9% to $746.83 millions. The company's operating loss increased by 263.2% to $731.76 millions from the previous year.
The net loss of the company was $740.34 millions and $2.35 per share. This is an increase of 208% and 155.4 % respectively.
Analysts expect DM to see its revenue decrease 2.9% from the previous year to $55,99 million in the second quarter ending in June 2023. The EPS for the second quarter is expected to be negative at $0.05. In three of the four previous quarters, it has missed its EPS estimate. DM shares are down 47.8% in the past year, closing the last trading day at $2.09.
DM's POWR ratings reflect this bleak forecast. Our proprietary rating system gives the stock an overall rating F, which is equivalent to a strong sell. The POWR ratings assess stocks based on 118 factors, each of which has its own weighting.
DM is rated F for Stability and Sentiment and D for Quality. It also has a D for Value. It is the last stock among six in the F--rated Technology - 3D printing industry. Please click here to view the additional POWR ratings for Growth and Momentum of DM.
Customers Bancorp, Inc.
CUBI is the holding company of Customers Bank, which offers financial services and products to consumers as well as small and mid-market businesses. Wyomissing's company offers a variety of deposit products including checking, saving, MMDA and other deposit accounts.
CUBI's ROTA for the trailing 12-month period of 1.09%, is 5.1% less than the industry average of 1.15%.
CUBI's fourth-quarter fiscal 2022 net income fell 74% on an annual basis to $25.62 millions. Also, its earnings per share (EPS) were $0.77, down by 73.9% from the previous year. Its total liabilities were $19.49 billion at the end of December 2022 compared to $18.21 for the same period in 2021.
Street forecasts CUBI revenue will decrease 5.1% from last year to $593.13 in 2023. In 2024, its EPS will drop 33.4% from the previous year to $5.08. In three of the last four quarters, it has failed to meet the EPS estimate. The stock price has dropped 59.3% in the last year to close at $19.25.
CUBI's POWR Ratings reflect its poor prospects. The stock is rated D, which in our rating system translates into a Sell.
CUBI is rated D for Growth and stability and F for Sentiment. It is ranked 45 out of 67 shares in the F rated Northeast Regional Banks Industry. Click here for additional POWR ratings for Value, Momentum and Quality of CUBI.
Conn's, Inc. (CONN)
CONN is a specialist retailer of durable consumer products and related services. It is divided into two segments: Retail and Credit.
The forward EV/EBITDA Multiple of 111.75 for CONN is higher than the average industry multiple of 9.42.
CONN's gross profit margin for the trailing 12 months of 25.35%, is 28% less than the industry average (35.23%). The company's ROTA for the trailing 12 months is negative 10.61%, which is lower than industry average of 11.79%.
CONN's revenues for the fourth quarter of fiscal 2022 ended December 31 decreased by 16.8% compared to last year, reaching $334.88 millions. The company's net loss was $42.81m, compared with a net profit of $7.56m in the previous year. Its net loss per share was $1.79 compared to $0.26 for the same quarter.
CONN's revenue for the first quarter ending in April 2023 is expected to decline 12.1% from last year to $298.77 millions. The EPS will remain at a negative $1.33. In three quarters, it has failed to meet EPS expectations. The stock price has dropped 70% in the last year to $4.97 at the close of the last trading day.
CONN's overall rating of D is not surprising. This would be equivalent to a Sell under our POWR Ratings System. It is rated F for Growth and Sentiment, and D for Momentum & Stability. It is ranked #38 of 44 stocks within the Specialty Retailers sector.
This special report contains 3 companies that are low-priced but have a tremendous upside potential, even in volatile markets today.
DM shares dropped $0.07 (-3.35%) in Friday's premarket trading. DM shares have gained 53.68 percent year-to-date compared to the S&P 500 benchmark index's 8.11% increase during the same time period.
Rashmi K. Kumari
Rashmi's passion for capital markets, financial regulation, and wealth management led her to pursue an investment analyst career. She has a master's in commerce and aspires, with her degree, to help individual investors understand complex financial issues.