The Fly

Sell these stocks now, proven algorithm says

Cruise lines, outdoor living products maker headline this week’s list of "F" rated Strong Sells

Here are this week’s downgrades to Strong Sell as determined by the POWR Ratings algorithm.

  • Carnival Corporation (CCL) – the world’s largest cruise company with a portfolio of nine cruise lines and operations in North America, Australia, Europe and Asia
  • Royal Caribbean Group (RCL) – a cruise company with a global fleet of 64 ships that owns and operates its flagship brand as well as Celebrity Cruises and Silversea Cruises
  • Azek (AZEK) – manufacturer of outdoor living products, including TimberTech decking, Versatex and AZEK Trim and StruXure pergolas
  • R1 RCM (RCM) – a provider of technology-driven solutions that complement a healthcare organization’s infrastructure
  • Confluent (CFLT) – a data streaming platform that is "pioneering a fundamentally new category of data infrastructure that sets data in motion"
  • Wayfair (W) – operator of its namesake e-commerce site and a family of brands that offer home goods and furnishings
  • ACV Auctions (ACVA) – a provider of a digital marketplace for wholesale vehicle transactions and data services
  • 3D Systems (DDD) – brands itself as "the leading additive manufacturing solutions partner" that offers hardware, software, materials, and services to address applications in markets such as medical and dental, aerospace & defense, automotive and durable goods
  • Wolfspeed (WOLF) – a provider of solutions for efficient energy consumption for various applications including electric vehicles, fast charging, 5G, renewable energy and storage, and aerospace and defense
  • Guardant Health (GH) – a precision oncology company
  • Lemonade (LMND) – an insurance company that offers renters, homeowners, car, pet, and life insurance in the United States, Germany, the Netherlands, France, and the UK

Learn more about the POWR Ratings

Recent news on these stocks:

December 1

Royal Caribbean International, owned by Royal Caribbean Group, announced it has set a "new bookings records yet again." The cruise line division stated: "This Black Friday was the cruise line’s single largest booking day in its 53-year history, which marked the third time the record was broken in 2022 and the peak of what is now the brand’s highest volume booking week. The strong demand and performance demonstrated by the two latest records come on the heels of the first look at the world’s best family vacation, Icon of the Seas, and the record-breaking day reported when the highly anticipated ship opened for bookings 15 months ahead of its January 2024 debut."

Holland America Line’s Black Friday booking volumes hit a record high for the shopping holiday in the United States, with volume for the day close to 20% higher than in 2019 and more than 10% higher for the period from Black Friday through Cyber Monday, the company announced.

November 30

Lemonade filed to sell 7.85M shares of common stock for holders

Stephens analyst Nicholas Zangler noted that Wayfair reported flat total company sales over the five-day period between Thanksgiving and Cyber Monday and given quarter-to-date performance and "conservatively assuming" a 10% year-over-year decline in December reflective of current performance during non-promotional periods, he believes a 6% revenue decline is "achievable," which would beat the consensus forecast for an 8.3% decline. The analyst, who awaits a return to revenue growth and execution of expense initiatives to become constructive on the stock, maintains an Equal Weight rating and $45 price target on Wayfair shares.

B. Riley analyst Alex Rygiel lowered the firm’s price target on Azek to $25 from $26 and keeps a Buy rating on the shares. The analyst reduced fiscal 2023 estimates to reflect lower unit demand following the Q4 results that were mostly ahead of his expectations.

BMO Capital analyst Ketan Mamtora lowered the firm’s price target on Azek to $27 from $29 but keeps an Outperform rating on the shares. The company’s FY2023 EBITDA guidance is "prudently conservative" as sell-through demand is down low single digits vs. Azek’s FY23 guidance of a 10% y/y drop in volumes, the analyst tells investors in a research note. Mamtora adds however that if resin costs fall further from current levels, there could be upside to Azek’s cost deflation target.

November 29

Wayfair announced "strong results" for the five-day peak holiday shopping period between Thanksgiving and Cyber Monday, including a low single digit sales increase in the U.S. compared to the same time period in 2021. Black Friday was the biggest sales day. "In addition, repeat customers accounted for 73% of holiday orders for the five-day period, and hundreds of thousands of new customers ordered from Wayfair for the first time," the company added.

Carnival Cruise Line reports the company "posted a record Cyber Monday booking day yesterday" that was 50% above volume for Cyber Monday 2019. "The Cyber Monday sale activity showed consumer demand across the fleet, and we were particularly pleased with the booking activity for Carnival Venezia’s new year-round service from New York, and our new extended six-month program for Carnival Magic out of Norfolk. Our very successful naming ceremony for Carnival Celebration on November 20 and all the media coverage it generated clearly kept Carnival top of mind as vacationers got started on their holiday shopping yesterday," said Christine Duffy, president of Carnival Cruise Line.

Jefferies analyst Philip Ng lowered the firm’s price target on Azek to $21 from $25 and keeps a Buy rating on the shares after the company reported an in-line fiscal Q4 and gave FY23 guidance below his expectations, primarily due to higher-than-anticipated de-stock. With management baking in a 10% decline in sell-through demand the 2023 guidance "seems very achievable" and free cash flow "should be up sharply in 2023," Ng tells investors.

Barclays analyst Matthew Bouley lowered the firm’s price target on Azek (AZEK) to $23 from $27 and keeps an Overweight rating on the shares. The analyst views composite decking as a "compelling growth category that is experiencing a perfect storm." Many investors will choose to "await the trough," with Q1 guidance only partially "clearing the deck" and potential risks beyond, but Azek is already priced for recession and is trading at an unwarranted discount to Trex Company (TREX), Bouley tells investors in a research note.

November 28

Azek reported Q4 adjusted EPS 16c, consensus 17c, and Q4 revenue $304.6M, consensus $288.41M. "Our fiscal 2022 results reflect the key strategic investments we have made to sustainably grow our business, our ability to execute with agility and our team’s steadfast focus on our customers. We delivered $1.36 billion in net sales – representing an increase of 15% year-over-year – and generated $75 million of net income and $301 million in Adjusted EBITDA, despite persistently higher costs and a dynamic and complex economic environment. Since fiscal 2019, we have grown our annual net sales from $794 million to $1.36 billion, or by approximately 71%. During that same period, our net income (loss) grew from ($20) million to $75 million, and our Adjusted EBITDA grew from $180 million to $301 million, or by approximately 68%, and we continue to be confident and excited by the opportunity that is ahead of us," said Jesse Singh, CEO of The Azek Company.

Azek sees Q1 revenue $200M-$215M, consensus $238.31M. Sees Q1 adjusted EBITDA $8M-$12M.

Azek sees FY23 adjusted EBITDA $250M-$265M. Sees FY23 CapEx $70M-$80M.

About "Sell these stocks now"

Each week, The Fly will announce the newest downgrades to Strong Sell in StockNews.com’s POWR Ratings algorithmic model.

This Fly exclusive recap identifies stocks with over a $1B market capitalization that have been downgraded this week to the Strong Sell, or "F," rating in the service’s proprietary model that analyzes 118 different factors, each of which contribute a little to the stock’s predicted likelihood of underperformance. A bell curve distribution of StockNews.com’s ratings shows that only the top 5% of the over 5,000 stocks rated by the system are assigned a "Strong Buy," or "A," rating while the bottom 5% are assigned a Strong Sell. The F-rated stocks would have tumbled an average of 18.98% a year since 1999, according to StockNews.com.

Keywords: Wall Street, sell, stocks to avoid, POWR Ratings, algorithmic trading

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