7 F-Rated Stocks to Avoid During the Downturn

Stocks to sell

When investors get pulled into markets like the one we’re in today, some investors hunker down, some sell, and some look for opportunities. I’m featuring F-rated Portfolio Grader stocks here because if you’re going to bottom fish, don’t snag a log thinking it’s a lunker.

The stocks here come from a variety of sectors. But as this market turmoil continues, what happens is, after the sector rotation, investors and traders get more specific with their winners and losers.

Some stocks in good sectors aren’t going to cut it, and some stocks in bad sectors are similarly troubled. Times like these are like brush fires that burn fast and hard but leave fertile ground for the next season.

Make sure you have quality stocks to ride this market out and be sure to have some money to investing in quality that’s on sale. These aren’t in either category:

  • Altice USA (NYSE:ATUS)
  • Credit Suisse Group (NYSE:CS)
  • Gap Inc (NYSE:GPS)
  • Boston Beer Co (NYSE:SAM)
  • Scotts Miracle-Gro (NYSE:SMG)
  • Wayfair (NYSE:W)
  • Denali Therapeutics (NASDAQ:DNLI)

F-Rated Stocks: Altice USA (ATUS)

Two pairs of feet in socks in front of a television set

Source: Tero Vesalainen/ShutterStock.com

Broadband used to be a very hot market for big and small cable players alike. But once the streaming boom arrived, cable companies — even ones with major market penetration — have had trouble attracting investors. This is because 5G technology is racing to unseat cable providers hoping to rewire their networks with fiber.

The thing is, while both tech expansions are costly, laying fiber is especially expensive. And if you’re a small broadband provider like ATUS with some niche programming to support, it’s especially hard.

At a $5 billion market cap, ATUS has been downgraded by major brokerages from hold to sell in recent quarters because its rebuild will put the debt-heavy company in even more debt.

ATUS stocks has lost 66% in the past 12 months, 27% year to date, and still has about 22% short interest betting against the stock.

This stock has an “F” rating in my Portfolio Grader.

Credit Suisse Group (CS)

A sign for Credit Suisse (CS) hangs in Zurich, Switzerland

Source: Pincasso / Shutterstock.com

While Swiss banking tends to give a sense of allure to people shopping for financial institutions, CS has been a mess before 2008. On Wall Street, CS isn’t the company many people think of when they think Swiss bank.

Adding to its recent — recent relative to its founding in 1856 — checkered past is the fact that it holds around a billion dollars in Russian assets and has to navigate a Europe under siege for the first time since WWII. It’s not a pretty picture. And the bank has been struggling for a while now before Russia invaded Ukraine.

The current environment will only make matters worse for CS stock. Mind you, the bank isn’t going to go out of business, but it’s certainly not worth buying here. CS stock has lost 38% in the past 12 months, 16% year to date. There are plenty of US financial institutions performing much better and with improving forecasts.

This stock has an “F” rating in my Portfolio Grader.

F-Rated Stocks: Gap Inc (GPS)

Source: Shutterstock

Theoretically, GPS brands like Gap, Old Navy, Banana Republic, Athleta and others should be slotted in for big profits. They’re middle market fast fashion with slightly upscale offerings. That means they appeal to a broad demographic of consumers that are cost conscious as well as fashion conscious.

Unfortunately, two simple words throw this strategy into disarray: supply chain. The consequences of outsourcing the means of production is coming home to roost for many retailers (and scores of others). Add to former supply chain woes the fact that China is locking down again, which means prices will rise, supply will be constrained and for GPS, margins will be squeeze.

GPS stock lost 53% in the past 12 months, 20% year to date. But new supply chain disruptions will certainly add to those losses. That’s why there’s still nearly 17% short interest in the stock.

This stock has an “F” rating in my Portfolio Grader.

Boston Beer Co (SAM)

Boston Beer Co SAM stock

Source: LunaseeStudios / Shutterstock.com

It’s a tough world for brewers, especially relatively small brewers like SAM. It bottles under the Samuel Adams and Dogfish Head breweries as well as Angry Orchard hard cider, Truly seltzer and Twisted Tea.

The current issue is its recent quarter was hit hard by slacking sales in seltzer. Seltzer was a hot pandemic drink that has gone flat since then. And where larger brewers have much broader product lines to absorb the losses, SAM doesn’t and that has landed it in my collection of F-rated stocks.

Also, there’s a demographic shift from beer to hard liquor among Millennials and Gen Xers. That’s a broader, longer-term shift and will need to be addressed as well. Don’t think the summer months will do much to boost business since high energy prices mean higher distribution and manufacturing costs as well.

SAM stock is down 63% in the past 12 months, 22% year to date. And there’s still 5% short interest betting for more downside.

This stock has an “F” rating in my Portfolio Grader.

F-Rated Stocks: Scotts Miracle-Gro (SMG)

Scotts Miracle-Gro (SMG) logo displayed on a web browser and magnified by a magnifying glass

Source: Casimiro PT / Shutterstock.com

This is another supply chain story mixed with rising energy prices and money leaving the cannabis stock boomlet.

SMG was a major beneficiary of the rise in cannabis stocks, especially in the U.S. As a top fertilizer and soil company, many indoor and canopy growers relied on SMG soil and nutrients for their grow operations. That was an unexpected but big boost to revenue for a generally cyclical and sleepy company.

But cannabis stocks lost out in sector rotation moving toward companies with real revenues and earnings. And now supply chain woes are making logistics more expensive as well as distribution costs. None of this is good for margins.

SMG stock has lost 47% in the past 12 months, 23% year to date. SMG has been around since before the Civil War, so it’s not going to disappear, but it’s not done correcting, either. That’s why it’s one of our F-rated stocks for now.

This stock has an “F” rating in my Portfolio Grader.

Wayfair (W)

The Wayfair (W) logo on the screen of a mobile phone with a purple background

Source: rafapress / Shutterstock.com

There’s no doubt that W had its moment. It was a big beneficiary during the pandemic, hitting all-time highs of nearly $356 in March of last year. It makes perfect sense that the company was exploiting the massive amount of Chinese production going on at the time, and much of its products weren’t getting hit by tariffs. For people spending significantly more time at home, with good jobs and low borrowing rates, it was a great time for W.

Now, however, we’re in a different place and W is a poster child of the next normal. Lower margins, growing losses, longer shipping times. None of it is good for the bottom line — or earnings.

W stock is down 65% in the past 12 months, 36% year to date since its last disappointing earnings numbers came out in late February. What’s more, W stock still has a 24% short interest betting against it. That’s a lot given how much it’s already given back.

This stock has an “F” rating in my Portfolio Grader.

F-Rated Stocks: Denali Therapeutics (DNLI)

Biochemical/biotech research scientist team working with microscope

Source: Mongkolchon Akesin / Shutterstock.com

Drug companies don’t really get stuck in the same economic cycle as other companies, since they don’t operate on a retail level. The risks with drug companies are their pipelines, patent cliffs and drug trials.

In the case of DNLI, a biopharmaceutical drug company that focuses on neurogenerative diseases, the latter has added it to my F-rated stocks. In mid-January, the company announced that a new Alzheimer’s disease drug it had applied to put in the pipeline for human trials was put on hold by the Food and Drug Administration. For a small, focused biopharma like DNLI, that’s bad news.

It means big potential partners curb their enthusiasm. And investors start to redeploy some assets. Loss of funding at such a crucial time makes it that much hard to keep momentum going.

DNLI stock is down 45% in the past 12 months, with more than half of that loss hitting since the beginning of the year. And it still has about 8% short interest against it.

This stock has an “F” rating in my Portfolio Grader.

On the date of publication, Louis Navellier has no positions in the stocks in this article. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.

The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

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