The market has been quite strong in November despite rising case counts that are leading to restrictions on activity in many areas. High-frequency economic data like credit card spending is showing signs of weakness.Given this trick situation, investors need to be even more judicious in making picks. The POWR Ratings can help you identify which stocks will underperform. Take a look at the stocks highlighted below, consider shorting them or selling your current positions and reevaluate at the start of the new year. It is quite possible these stocks will bounce back to respectability after a coronavirus vaccine is dispersed and the economy returns to normal.
Here is a quick look at four recently downgraded stocks: Biogen (BIIB), Virgin Galactic Holdings (SPCE), Mercury Computer Systems (MRCY) and eGain Communications (EGAN).
Biogen (BIIB)
BIIB develops, makes and commercializes important novel therapies. The POWR Ratings reveal BIIB has a "F" grade in the Trade Grade component and a "D" grade in the Peer Grade component. BIIB is ranked 138th out of nearly 400 publicly traded companies in the Biotech space.
BIIB has a year-to-date price return of -16% along with a six-month price return of -18%. Out of the 30 analysts to have studied BIIB, 11 consider it a “Buy”, 14 consider it to be a “Hold” and five recommend selling.
Stay far away from BIIB until the company’s Alzheimer’s drug wins approval or another one of its products appears to be nearing approval for consumer use.
Virgin Galactic Holdings (SPCE)
Have you ever wanted to travel into space as a tourist without going through the training and education necessary to become an astronaut? SPCE insists it will make this pipe dream a reality in the near future. However, SPCE is currently struggling, starving for cash and probably won’t come close to meeting its timeline for manned tourist flights into space.
Check out the SPCE POWR Ratings and you will find the company has a "F" grade in the Buy & Hold Grade component along with "D" grades in the Industry Rank and Peer Grade components. SPCE is ranked 12th out of 22 stocks in the Airlines sector. The stock has a one-month price return of -4.51%.
SPCE has not come close to returning to its pre-COVID trading level of $30 to $35. The company's most recent plans for a space flight have been delayed due to the coronavirus. However, once the economy returns to normal and people have discretionary income to spend freely, SPCE could easily bounce back.
Mercury Computer Systems (MRCY)
MRCY products are used for everything from commercial aviation to defense, aerospace, intelligence programs and more. This is one of the top sensor and safety critical mission subsystems makers. More than 300 intelligence and defense programs rely on MRCY solutions and products. However, MRCY has been struggling of late. Take a look at the company's POWR Ratings and you will find it has a "F" grade in the Trade Grade component along with "D" grades in the Industry Rank and Peer Grade components.
MRCY is ranked 32nd out of 65 publicly traded companies in the Air/Defense Services. MRCY's year-to-date price return is -0.61%. The company's six-month price return is -18%. Furthermore, the company has a three-month price return of -9.42%.
It is clearly going to take some time for MRCY to return to its pre-COVID price of $87. Resist the temptation to invest in this stock until its POWR Rating components improve.
eGain Communications (EGAN)
Web-based consulting, training, support and maintenance is the business of EGAN. These solutions are tailored to businesses’ customer engagement challenges.
Take a look at EGAN's POWR Ratings and you will find the stock has "D" grades in the Peer Grade, Trade Grade and Buy & Hold Grade components. The stock is ranked in the bottom half of 96 Software - Application stocks.
EGAN's three-month price return is -1.05%. The stock has a one-month price return of -40.17%. Reduced quarterly guidance appears to be the motivation for investors' departure from EGAN.
Stay away from this tock until some positive news emerges.
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SPCE shares were trading at $24.27 per share on Friday morning, up $0.22 (+0.91%). Year-to-date, SPCE has gained 110.13%, versus a 12.36% 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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