Two Stocks You Shouldn’t Buy When Weakened After Earnings

Don’t go bottom fishing on these names yet

Price weakness, especially post-profit loss, price weakness in what is otherwise a good, healthy company is often a good time to buy stocks. The problem is that all too often bottom fishing turns an investment into dead money, or worse, into a loss that could otherwise have been avoided. While Footlocker and Deere & Company have many positives, there were issues in the earnings reports we see capping of profits in the short to medium term, if not longer. More importantly, the analyst community is noticing many of the same issues and lowering their pricing targets and ratings for these names.



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Deere & Company plunges into supply chain woe

Deere & Company (NYSE: DE) had a good quarter, beating the Marketbeat.com consensus on the top and bottom lines, but by very narrow margins. Sales only beat 160 basis points, meaning the nearly 11.0% growth in the stock was priced in and the outlook also failed to provide a catalyst for higher stock prices. While the company raised its outlook for the year, it only marginally raised the outlook, mainly due to special items realized during the quarter. The bottom line is that the results and guidance are “underwhelming,” as MET analyst John Joyner put it, and now that’s being priced in the market.

Deere & Company has a minimum of 8 . receive analyst comments since the Q2 earnings report was released and none of them are good. All 8 include a price target cut that has caused Marketbeat.com’s consensus price target to drop over the past 30 days and remain stable for the past 90 days. Based on our view of results and the economic outlook, we don’t expect this trend change anytime soon and it could deteriorate before it gets better. Demand for Deere & Company products remains high, but the supply chain and production-related failures are expected to last until the end of the fiscal year.
Two Stocks You Shouldn't Buy When Weakened After Earnings

Ross won’t strike a bargain at these prices

Shares of Ross stores (NASDAQ: ROST fell hard in the wake of the Q1 earnings report on top and bottom line weakness. The miss was all the more surprising given the inflationary environment that should push shoppers into the discount stores. However, the problem may be that Ross Stores’ customer base is one of the hardest hit by inflation, which could also lead to weakness later in the year. The company has already lowered its guidance and we believe it could lower guidance again if gasoline prices don’t fall.

The analysts are still rate the stock a Buy but it’s a weak buydown from a solid Buy earlier this year. Marketbeat.com’s price target is also falling in the 12, 3 and 1 month comparisons. At least 9 analyst notes have come out since publication, with all 9 lowering the price target and 1, Telsey Advisory Group, lowering the stock to Outperform’s Marketperform, and we don’t think it will be the last.

The price action in Ross Stores is recover from the new low but we don’t think investors should be chasing the action. While the rebound is showing some signs of strength, it is still well below what we consider a very strong resistance target. We believe that without any change in the fundamental picture, price action will be capped at the $87.75 level and then move sideways within a range. Investors interested in this name should wait for the stock to retest the lows near $70.
Two Stocks You Shouldn't Buy When Weakened After Earnings