Chronicle Journal: Finance

4 Downgraded Stocks Not Worth the Risk

The stock market has been quite strong and looks to add to its gains into year-end. Investors should still avoid stocks showing deteriorating or distribution such as SAVE, AMRS, PEN, and SFM.

The latest POWR Ratings downgrades have been calculated. Though only one stock has been downgraded to the “F” grade indicating “Strong Sell”, plenty have been downgraded from “C” grades to “D” grades.

If you own any of the stocks that have been downgraded to “Sell” status, it is time to seriously consider selling your stock or possibly even buying a put option. At the very least, you should consider reducing the size of your position in recently downgraded stocks.

Without further ado, let’s take a look at four of the latest POWR Rating downgrades: Penumbra (PEN), Spirit Airlines (SAVE), Sprouts Farmers Markets (SFM), and Amyris (AMRS).

Penumbra (PEN)

PEN has been in the news as company executives have allegedly misrepresented the merits of its interventional therapies. Allegations have arisen that some of the company’s scientific research was authored by an individual who does not exist. This is clearly one of the strongest stock market stories of the year.

If it turns out PEN’s brass is lying about the effectiveness of its products to treat neuro and vascular conditions, it will be challenging for the stock to rebound. The POWR Ratings show PEN has an "F" Trade Grade along with a "D" Peer Grade component. The stock is ranked 94th of more than 143 in the Medical - Devices & Equipment category.

If you own PEN, now is the time to consider selling or even shorting the stock.

Spirit Airlines (SAVE)

Discount airlines are certainly tempting during normal times yet 2020 is far from normal. SAVE will struggle to rebound unless the vaccines prove effective and economic activity returns to normal within the next year. The reduction in air travel will force SAVE to cut costs even more. Anyone who has flown on SAVE planes will testify that the company offers bare-bones service as is.

SAVE has an "F" grade in the Buy & Hold Grade POWR Rating component along with a "D" Industry Rank grade. SAVE is ranked 20th of 22 stocks in the Airlines category. The top analysts are bearish on SAVE, having established an average price target of $23.33 for the stock, indicating there is nearly 10% downside.

SAVE has not recovered from the mass investor exodus this past spring when the pandemic began. Though the stock has slowly climbed upward little by little, it is still priced around half of its pre-virus level.

Sprouts Farmers Market (SFM)

If it weren’t for the considerable increase in shoplifting, now would be the perfect time to be a grocer. People are loading up on food and other sundries, opting to spend their discretionary income on tasty treats and household supplies rather than luxuries and experiences. However, the rising tide has not lifted the SAVE boat. SFM jumped up to $27 this past summer and has since sold off, moving right back down to its pre-virus price level of $19 to $20.

The POWR Ratings reveal SFM has an "F" Trade Grade component along with a "D" Peer Grade component. SFM is ranked second last of 18 publicly traded companies in the Grocery/Big Box Retailers segment. Of the dozen analysts who have studied SFM, six advise holding the stock, four advise selling and only two recommend buying.

Part of the problem with SFM is the company does not have stores in numerous large states. Time will tell if SFM can replicate Whole Foods' success. If the company makes it to Whole Foods' level, it will take years or even decades. Most investors don't have the patience to wait it out. Their bottom line is there are better investment options than SFM.

Amyris (AMRS)

AMRS scientists and engineers use its synthetic biology tech to make renewable products that serve as alternatives to products that rely on petroleum. These products are used in both transportation and chemical fuel markets across the globe.

The POWR Ratings show AMRS has an "F" grade in the Buy & Hold Grade component along with a "D" grade in the Peer Grade component. AMRS is ranked 59th of 69 stocks in the Chemicals sector.

AMRS is in the midst of handling a patent infringement lawsuit that could derail its commercial production of cannabigerol, a molecule stemming from cannabis. Investors should steer clear of AMRS until it looks like the company has overcome its legal woes.

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SAVE shares were trading at $26.23 per share on Wednesday morning, down $0.45 (-1.69%). Year-to-date, SAVE has declined -34.93%, versus a 16.55% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.


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