Is your portfolio waving a red flag? Do you have some stocks that are in peril? Those are what we call red flag stocks.
Historically, red flags were used as a visual signal to indicate a warning or danger ahead. Red flags signal dangerous conditions in maritime usage and have been used throughout history by armies to signal a stop because the enemy is ahead.
So if you’ve got a red flag stock, there’s some trouble in your portfolio.
The market is generally pretty mixed right now, and not every stock is having problems. The tech-heavy Nasdaq composite is up 5% in the last 30 days, and the Dow Jones Industrial Average is down 3%. The S&P 500 is right in the middle, roughly flat over the previous month.
While many stocks are benefiting right now from positive analyst revisions following the most recent round of quarterly results, some stocks are also on the other side. They are seeing lower earnings estimates, and their ratings are falling in the Portfolio Grader. That’s how they become red flag stocks.
Here are seven such names to avoid in these treacherous conditions.
Bank of America (BAC)
Bank of America (NYSE:BAC) is one of the biggest banks in the U.S. and carries a market capitalization of $225 billion.
While it’s not a regional bank stock, it’s undoubtedly been wounded along with the rest of the sector in recent weeks as bank failures shook the market.
Bank of America stock is down 15% so far this year. While it brought in $25.33 billion in revenue in the first quarter – about 9% better than a year ago – I’m not expecting those returns to continue in Q2.
Evercore ISI analyst Glenn Schorr maintained an “overweight” rating on Bank of America shares but reduced his price target from $36 to $35.
He said he expects BAC to be among those banks who are seeing a lower price target because the FDIC is considering a special assessment for banks to replenish the deposit insurance fund following the failures of Signature Bank (OTCMKTS:SBNY) and the former Silicon Valley Bank.
BAC stock moved from a “C” to a “D” in the Portfolio Grader and made this list of red flag stocks.
Altria Group (MO)
Altria Group (NYSE:MO) is in the tobacco trade, but it’s not satisfied there – not surprising, considering that tobacco users continue to face high prices, taxes and some public scorn – many buildings, restaurants and pseudo-public spaces are smoke-free.
So Altria’s tried to spread its wings, unsuccessfully. It invested $12.8 billion for a minority stake in vaping company Juul. It spent another $2.75 billion on another vape manufacturer, Njoy Holdings. And it spent $1.8 billion for a minority stake in Cronos Group (NASDAQ:CRON), a marijuana company.
None of that turned out well. Altria wrote off the Juul investment, and the U.S. balked at the federal legalization of marijuana. At the end of 2022, it reported $26.68 billion in debt.
Altria says its evaluating opportunities in the international innovative smoke-free and non-nicotine market and hopes to finalize strategies in the next year. It sounds like more of the same for Altria, down by 19% over the last five years and more than 2% in 2023 making it one of the red flag stocks to dump soon.
MO stock fell from a “C” to a “D” in the Portfolio Grader.
Icahn Enterprises (IEP)
Headed by billionaire investor Carl Icahn, Icahn Enterprises (NASDAQ:IEP) invests in troubled businesses in multiple sectors, including automotive, real estate and consumer goods. As an activist investor, Icahn shakes companies up to turn them around and maximize revenues and profits.
Perhaps it’s ironic that Icahn is falling victim to a short-seller report targeting his company. Hindenburg Research released a report that alleges the use of new investor funds by Icahn Enterprises to pay out unsustainable dividends.
Then Icahn Enterprises posted a first-quarter loss that surprised investors, and disclosed that U.S. prosecutors contacted it. Those events in early May pushed the stock price down 15%.
This week, IEP dropped another 20% when a rival hedge fund manager, Bill Ackman, publicly sided with Hindenburg in its initial report.
Overall, IEP is down 59% on the year. Its Portfolio Grader rating fell from a “B” to an “F.”
You’re likely familiar with Qualcomm (NASDAQ:QCOM), the maker of smartphone semiconductor chips. It also makes wireless technology software and services.
The major problem with this stock is a slowdown in smartphone sales expected to continue for the next several months. QOCM stock is down 16% in the last three months and 19% in the previous 12 months.
Revenue for the fiscal second quarter was down 17% from a year ago. And the company issued guidance for the third quarter of only $8.5 billion when analysts expected $9.1 billion. The company is projecting EPS between a range of $1.70 and $1.90, but Wall Street was expecting $2.16.
You may be hoping that QCOM joins other tech companies on the freight train that is artificial intelligence. But for now, Qualcomm’s Portfolio Grader rating is down from a “C” to a “D.”
Portage Biotech (PRTG)
Toronto-based Portage Biotech (NASDAQ:PRTG) is focused on developing cancer treatments. Its pipeline has numerous drug candidates to treat melanoma, solid tumors and soft tissue sarcoma.
Earnings for the fourth quarter of 2022 included a net loss of $7.5 million, compared to a loss of $4.2 million in the year before. The loss of 44 cents per share was much worse than analysts’ expectations for a loss of 23 cents per share.
With no revenue coming in any time soon – only one of Portage’s candidates is close to Phase 3 testing – there’s no expectation that Portage stock will break higher shortly. The stock is down nearly 40% just this year, making it one of the red flag stocks to get out from under while you can.
PRTG stock is down from a “C” to a “D” in the Portfolio Grader.
SPI Energy (SPI)
Its SolarJuice division caters to residential and small commercial customers, while its commercial solar division operates solar projects and sells services to third-party project developers. A third division, Phoenix Motor, manufactures commercial EVs, electric scooters and EV charger solutions.
Revenue in the first quarter was $47.9 million, with an operating loss of $7.3 million, or 31 cents per share.
SPI Energy is a penny stock with a market capitalization of only $38 million and total assets of only $230 million. It has about $75.2 million in debt. The Portfolio Grader has it down to a “D” from a “C” rating.
Estee Lauder (EL)
Beauty and skincare company Estee Lauder (NYSE:EL) is coming off a rough first quarter that caused its stock to drop by 17%.
Revenue was $3.75 billion, down 12% from a year ago. And earnings for the quarter dropped by more than half, coming in at $156 million. Estee Lauder cut its full-year earnings guidance from a range of $6 to $7.20 to a range of $3.80 to $6.
The disappointing earnings report was just more of the same for the makeup company, which now has seen its stock price fall by 22% in 2023 and 31% from its 52-week high. An activist investor, Nelson Peltz, has set his sights on the company with a proposed takeover. That’s easier said than done, considering that the Lauder family controls 86% of voting shares.
Argus analyst John Staszak cites the company’s disappointing earnings and the slow pace of China’s economic recovery as reasons to downgrade EL stock from “buy” to “hold.” The Portfolio Grader agrees as EL stock moved from a “C” to a “D” rating.
On the date of publication, Louis Navellier had a long position in BAC. 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.