The first week of trading in 2021 ended on a bullish tone. However, many stocks and sectors underperformed. If the market rolls over, then these would likely sustain the biggest losses.
The POWR Ratings can help you identify technically and fundamentally weak stocks, as they are updated daily.
Without further ado, let’s take a look at four of the most notable POWR Ratings downgrades: New Residential Investment (NRZ), Fisker (FSR), Groupon (GRPN) and Lannett (LCI).
New Residential Investment (NRZ)
The supposed investing gurus often recommend investing in real estate investment trusts or REITs for short. NRZ is one such REIT, focused on residential real estate investments. Most of NRZ’s investments are in residential mortgage loans, mortgage-backed securities, and excess mortgage servicing rights.
NRZ has a low forward P/E ratio of 6.72 yet it shows no signs of moving back toward its pre-covid trading range of $16 to $18. NRZ has "D" grades in the Peer Grade, Trade Grade, Industry Rank, and Buy & Hold Grade POWR Rating components. NRZ is ranked 23rd of 33 stocks in the REITs - Mortgage space.
NRZ had a 2020 price return of -34.36%. The stock's three-year price return is a disappointing -26.03%. Though NRZ has an 8.29% dividend, yet this dividend is not guaranteed to be paid as the company is holding onto loans it cannot sell due to the mortgage market's depressed liquidity.
Fisker (FSR)
FSR is an electric vehicle-maker. Though the company had plenty of hype in the last two financial quarters of 2020, it looks like it might struggle to fulfill investor expectations. FSR is ranked 44th of 53 publicly traded companies in the Auto & Vehicle Manufacturers segment. The stock has "D" grades in the Peer Grade, Trade Grade and Buy & Hold Grade POWR Rating components.
Investors have jumped ship as it appears FSR is overvalued. After all, the company is still around a year away from actually delivering electric vehicles. Add in the fact that a former Deutsche Bank analyst, Rod Lache, suggested FSR is overpriced and you have even more reason to sell or short the stock.
There is no reason to invest in FSR until the company makes meaningful headway in its quest to make and deliver actual electric vehicles to customers. That benchmark might be nine months or even a full year away.
Groupon (GRPN)
One would think a business that provides “deal of the day” discounts would thrive during an economic contraction. However, penny-pinching consumers are not actively seeking discounts as occurs in other recessions simply because there is an overarching fear of contracting coronavirus. GRPN provides deals to subscribers in nearly 600 cities throughout the world.
The analysts are particularly bearish on GRPN, setting an average price target of $28 for the stock, indicating there is more than a 20% downside to go. Of the five analysts who have studied the stock, three recommend holding, one recommends selling and only one considers it worth buying.
The POWR Ratings reveal GRPN has "D" grades in the Trade Grade, Peer Grade, and Buy & Hold Grade components. GRPN is ranked 46th of 71 stocks in the Internet category. It is awfully concerning that GRPN's price returns are in the red across the three prior years. In 2020 alone, the stock had a -20.51% price return.
Lannett (LCI)
LCI makes and distributes comparably low-cost generic medications. These generic versions of brand-name pharmaceuticals have mass appeal yet LCI has been on the downswing for quite a while now. It might not be long until LCI becomes a penny stock.
LCI’s brass insists the company’s success is dependent on its ability to make new medications. However, constantly researching and developing such generic versions of brand name pharmaceuticals is not exactly cheap. Though LCI is trading merely a dollar and change above its 52-week low, its forward P/E ratio is still in excess of 12, meaning it still might be overvalued.
The POWR Ratings show LCI has "D" grades in the Buy & Hold Grade and Trade Grade components. The stock is ranked 160th of more than 270 in the Medical - Pharmaceuticals space. LCI had a 2020 price return of -26.08%. The stock's three-month price return is -6.43%.
LCI will likely continue to struggle, partially because the drug competition plan implemented by the FDA is making it that much more challenging for the company to make money. The final nail in the coffin is LCI's 200% debt-to-equity ratio. Stay far away from this stock.
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FSR shares fell $14.91 (-100.00%) in premarket trading Tuesday. Year-to-date, FSR has gained 2.05%, versus a 1.43% 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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