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J.P. Morgan: 3 Risky Stocks to Sell Now

J.P. Morgan: 3 Risky Stocks to Sell Now

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New month, same volatility. Kicking off the second quarter of 2020, all three of the major U.S. stock indexes dropped more than 4% yesterday in response to an update from the Trump administration. Late on March 31, the President stated the next two weeks will be “painful," with health officials predicting a significant spike in COVID-19-related deaths.

As U.S. stock futures tick up on April 2, investors are worried the volatility is here to stay, and new economic data hasn’t calmed these fears. According to an ADP National Employment report, last month, private payrolls fell for the first time since 2017, by 27,000 jobs to be precise. It doesn’t help that new orders to factories reached its lowest point in 11 years.

In light of these developments, investment firm J.P. Morgan reassessed some of the names in its coverage universe. The well-known financial institution found that the impacts of COVID-19 have made several stocks riskier plays than they once were.

Bearing this in mind, we used TipRanks’ database to take a closer look at three stocks that have fallen out of favor with the firm. It turns out that the rest of the Street also takes a cautious approach when it comes to these tickers. Let’s take a closer look.

Plantronics Inc. (PLT)

Next up we have electronics company Plantronics, which provides business and personal headsets as well as audio solutions. So far in 2020, shares have plummeted 71%, and J.P. Morgan doesn’t see a recovery anywhere in sight.

After gaining more insight on PLT’s standing amid the ongoing public health crisis, analyst Paul Coster acknowledges that it’s positioned to endure the disruption caused by COVID-19. That being said, he argues that it would do so with limited balance sheet flexibility, and thus can’t recommend that investors do anything other than sell shares. “Consensus estimates through FY21 are too high, in our view, so downward revisions could weigh on the stock near-term. This downgrade is not a call to short the stock, but we are sidelined on elevated near-term risks,” Coster explained.

Speaking to these estimates, Coster expects voice, headset and product sales to fall by 25-30% year-over-year during the next two quarters, with the video and services segments taking a mid-single-digit hit. The gross margin prediction also gets a haircut, by 200 basis points to be exact. “We assume the firm bears down on operating expenses to moderate impact on cash flow... We expect sharp downward revisions to estimates to weigh on the stock near term,” the analyst said.

There is some good news, though. Following discussions with IT VAR/Distributors, observed enterprise and SMB behavior and the monitoring of Google search trends, Coster thinks the company might get a near-term boost from the increase in headset and some tele/conferencing equipment sales as more people start working from home.

However, the analyst noted, “... we think this is a temporary demand pull-forward, and we also believe it is probably offset by the decline in enterprise spending on on-premises desktop phones, conference phones, VTC equipment. We are also concerned that enterprises will sweat assets coming out of a downturn and that there will be a decline in service revenue associated with lower installation and usage levels.”

As a result, Coster gives PLT a thumbs down, downgrading his call from Neutral to Underweight. He also reduced the price target from $17 to $12, but the new figure still suggests 50% upside potential. (To watch Coster’s track record, click here)

The rest of the Street has reservations as well. 4 Holds and a single Sell issued in the last three months add up to a Hold analyst consensus. That being said, the $18.60 average price target puts the upside potential at 132%. (See Plantronics stock analysis on TipRanks)

Nio Inc. (NIO)

With the goal of being the first “User Enterprise," Nio considers itself more than just a car company, offering high-performance, electric vehicles (EVs). Given that shares are down 36% in the last month and its engineering chief is set to depart amid ongoing reorganization, things aren’t looking good.

This is the stance taken by J.P. Morgan. Weighing in on Nio for the firm, analyst Ryan Brinkman states that while its Chinese name, Weilai, might translate to “blue sky is coming”, this isn’t the case for the company. Against the current tumultuous economic backdrop, the industry as a whole is facing headwinds like weak consumer sentiment and the growing localized entry of foreign brands into the EV space. “Fundamentally, we have two key reservations: 1) slow sales and a challenging NEV market; and 2) funding and financing,” the analyst commented.

Based on Brinkman’s estimates, PV demand in China is slated to take another 7% hit in 2020 as a result of poor consumer sentiment and a weak economy. In addition, the challenging nature of the auto market as well as steep competition from Tesla and other EV start-ups in China do little to improve Nio’s prospects.

In order to stimulate demand in China, the government will potentially cut the NEV subsidy in the second half of 2020, but this works against Nio. “Further, the government’s efforts to boost auto demand by easing purchase restrictions for NEVs could increase competition for NIO,” Brinkman explained.

It should also be noted that Nio recently reached an agreement with Hefei Government for additional funding after a $200 million convertible note and two $100 million convertible bonds were issued. When the company receives the funding support, Brinkman thinks that Nio will be stable in the near-term with respect to cash. However, the five-star analyst argued, “While the funding size and deal structure have not yet been decided upon or disclosed, we do not rule out the possibility of NIO needing further funding in 2H20/2021, considering the pace of cash burn. Possible equity dilution is another factor investors need to consider.”

To this end, Brinkman assumed coverage of this stock with an Underweight rating and $2 price target. Should shares reach this level in the next year, Nio stands to see 25% of its value erased. (To watch Brinkman’s track record, click here)

Turning now to the rest of the Street, other analysts are staying on the sidelines. With 2 Holds published in the last three months, NIO earns a Hold consensus rating. However, at $4.10, the average price target implies 55% upside potential. (See Nio stock analysis on TipRanks)

Diebold Nixdorf Incorporated (DBD)

Like Plantronics, banking solutions and retail technology systems provider Diebold Nixdorf has shed 71% of its value year-to-date. Add in a recent downgrade from J.P. Morgan, and it’s clear why this name has received negative attention from investors.

Writing for the firm, Paul Coster, who also covers Plantronics, isn’t necessarily recommending that investors short the stock. Rather, DBD’s exposure to end-markets heavily impacted by COVID-19 makes the stock just too risky.

Explaining this assumption, the analyst stated, “Neither DBD nor Neutral-rated NCR stocks seem appealing at present, despite trough-level forward multiples, but we prefer NCR in view of the cash on hand following last night’s revolver drawdown.”

Based on the mounting evidence that “COVID-19 is dramatically reducing foot-traffic in retail, hospitality and bank branches, and that field service resources cannot be deployed to deployments”, Coster believes the bottom line will take a beating. “We look for DBD to generate 2020 PF EPS of $0.33 on revenue of $4.1 billion versus consensus of $0.99 EPS on revenue of $4.2 billion, and we believe risks are skewed to the downside,” he noted.

Having said that, should both revenue and earnings level out and improve in the second half of 2020, liquidity most likely won’t be at risk. However, as Coster doesn’t see DBD’s leverage ratio getting better throughout the year, and the DN Now program might need to be ramped up thanks to swings in working capital, the long-term growth narrative appears weak.

In line with this conclusion, Coster downgraded the stock from Neutral to Underweight and cut the price target by $2. Still, this new $6 target conveys his belief that shares could soar 96% in the next twelve months.

Looking at the consensus breakdown, it has been quiet when it comes to other analyst activity. Coster’s downgrade is the only recent review, making the consensus rating a Moderate Sell. (See Diebold Nixdorf stock analysis on TipRanks)

The post J.P. Morgan: 3 Risky Stocks to Sell Now appeared first on TipRanks Financial Blog.

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Key shipping company files for Chapter 11 bankruptcy

The Illinois-based general freight trucking company filed for Chapter 11 bankruptcy to reorganize.

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The U.S. trucking industry has had a difficult beginning of the year for 2024 with several logistics companies filing for bankruptcy to seek either a Chapter 7 liquidation or Chapter 11 reorganization.

The Covid-19 pandemic caused a lot of supply chain issues for logistics companies and also created a shortage of truck drivers as many left the business for other occupations. Shipping companies, in the meantime, have had extreme difficulty recruiting new drivers for thousands of unfilled jobs.

Related: Tesla rival’s filing reveals Chapter 11 bankruptcy is possible

Freight forwarder company Boateng Logistics joined a growing list of shipping companies that permanently shuttered their businesses as the firm on Feb. 22 filed for Chapter 7 bankruptcy with plans to liquidate.

The Carlsbad, Calif., logistics company filed its petition in the U.S. Bankruptcy Court for the Southern District of California listing assets up to $50,000 and and $1 million to $10 million in liabilities. Court papers said it owed millions of dollars in liabilities to trucking, logistics and factoring companies. The company filed bankruptcy before any creditors could take legal action.

Lawsuits force companies to liquidate in bankruptcy

Lawsuits, however, can force companies to file bankruptcy, which was the case for J.J. & Sons Logistics of Clint, Texas, which on Jan. 22 filed for Chapter 7 liquidation in the U.S. Bankruptcy Court for the Western District of Texas. The company filed bankruptcy four days before the scheduled start of a trial for a wrongful death lawsuit filed by the family of a former company truck driver who had died from drowning in 2016.

California-based logistics company Wise Choice Trans Corp. shut down operations and filed for Chapter 7 liquidation on Jan. 4 in the U.S. Bankruptcy Court for the Northern District of California, listing $1 million to $10 million in assets and liabilities.

The Hayward, Calif., third-party logistics company, founded in 2009, provided final mile, less-than-truckload and full truckload services, as well as warehouse and fulfillment services in the San Francisco Bay Area.

The Chapter 7 filing also implemented an automatic stay against all legal proceedings, as the company listed its involvement in four legal actions that were ongoing or concluded. Court papers reportedly did not list amounts for damages.

In some cases, debtors don't have to take a drastic action, such as a liquidation, and can instead file a Chapter 11 reorganization.

Truck shipping products.

Shutterstock

Nationwide Cargo seeks to reorganize its business

Nationwide Cargo Inc., a general freight trucking company that also hauls fresh produce and meat, filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Northern District of Illinois with plans to reorganize its business.

The East Dundee, Ill., shipping company listed $1 million to $10 million in assets and $10 million to $50 million in liabilities in its petition and said funds will not be available to pay unsecured creditors. The company operates with 183 trucks and 171 drivers, FreightWaves reported.

Nationwide Cargo's three largest secured creditors in the petition were Equify Financial LLC (owed about $3.5 million,) Commercial Credit Group (owed about $1.8 million) and Continental Bank NA (owed about $676,000.)

The shipping company reported gross revenue of about $34 million in 2022 and about $40 million in 2023.  From Jan. 1 until its petition date, the company generated $9.3 million in gross revenue.

Related: Veteran fund manager picks favorite stocks for 2024

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Key shipping company files Chapter 11 bankruptcy

The Illinois-based general freight trucking company filed for Chapter 11 bankruptcy to reorganize.

Published

on

The U.S. trucking industry has had a difficult beginning of the year for 2024 with several logistics companies filing for bankruptcy to seek either a Chapter 7 liquidation or Chapter 11 reorganization.

The Covid-19 pandemic caused a lot of supply chain issues for logistics companies and also created a shortage of truck drivers as many left the business for other occupations. Shipping companies, in the meantime, have had extreme difficulty recruiting new drivers for thousands of unfilled jobs.

Related: Tesla rival’s filing reveals Chapter 11 bankruptcy is possible

Freight forwarder company Boateng Logistics joined a growing list of shipping companies that permanently shuttered their businesses as the firm on Feb. 22 filed for Chapter 7 bankruptcy with plans to liquidate.

The Carlsbad, Calif., logistics company filed its petition in the U.S. Bankruptcy Court for the Southern District of California listing assets up to $50,000 and and $1 million to $10 million in liabilities. Court papers said it owed millions of dollars in liabilities to trucking, logistics and factoring companies. The company filed bankruptcy before any creditors could take legal action.

Lawsuits force companies to liquidate in bankruptcy

Lawsuits, however, can force companies to file bankruptcy, which was the case for J.J. & Sons Logistics of Clint, Texas, which on Jan. 22 filed for Chapter 7 liquidation in the U.S. Bankruptcy Court for the Western District of Texas. The company filed bankruptcy four days before the scheduled start of a trial for a wrongful death lawsuit filed by the family of a former company truck driver who had died from drowning in 2016.

California-based logistics company Wise Choice Trans Corp. shut down operations and filed for Chapter 7 liquidation on Jan. 4 in the U.S. Bankruptcy Court for the Northern District of California, listing $1 million to $10 million in assets and liabilities.

The Hayward, Calif., third-party logistics company, founded in 2009, provided final mile, less-than-truckload and full truckload services, as well as warehouse and fulfillment services in the San Francisco Bay Area.

The Chapter 7 filing also implemented an automatic stay against all legal proceedings, as the company listed its involvement in four legal actions that were ongoing or concluded. Court papers reportedly did not list amounts for damages.

In some cases, debtors don't have to take a drastic action, such as a liquidation, and can instead file a Chapter 11 reorganization.

Truck shipping products.

Shutterstock

Nationwide Cargo seeks to reorganize its business

Nationwide Cargo Inc., a general freight trucking company that also hauls fresh produce and meat, filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Northern District of Illinois with plans to reorganize its business.

The East Dundee, Ill., shipping company listed $1 million to $10 million in assets and $10 million to $50 million in liabilities in its petition and said funds will not be available to pay unsecured creditors. The company operates with 183 trucks and 171 drivers, FreightWaves reported.

Nationwide Cargo's three largest secured creditors in the petition were Equify Financial LLC (owed about $3.5 million,) Commercial Credit Group (owed about $1.8 million) and Continental Bank NA (owed about $676,000.)

The shipping company reported gross revenue of about $34 million in 2022 and about $40 million in 2023.  From Jan. 1 until its petition date, the company generated $9.3 million in gross revenue.

Related: Veteran fund manager picks favorite stocks for 2024

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Tight inventory and frustrated buyers challenge agents in Virginia

With inventory a little more than half of what it was pre-pandemic, agents are struggling to find homes for clients in Virginia.

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No matter where you are in the state, real estate agents in Virginia are facing low inventory conditions that are creating frustrating scenarios for their buyers.

“I think people are getting used to the interest rates where they are now, but there is just a huge lack of inventory,” said Chelsea Newcomb, a RE/MAX Realty Specialists agent based in Charlottesville. “I have buyers that are looking, but to find a house that you love enough to pay a high price for — and to be at over a 6.5% interest rate — it’s just a little bit harder to find something.”

Newcomb said that interest rates and higher prices, which have risen by more than $100,000 since March 2020, according to data from Altos Research, have caused her clients to be pickier when selecting a home.

“When rates and prices were lower, people were more willing to compromise,” Newcomb said.

Out in Wise, Virginia, near the westernmost tip of the state, RE/MAX Cavaliers agent Brett Tiller and his clients are also struggling to find suitable properties.

“The thing that really stands out, especially compared to two years ago, is the lack of quality listings,” Tiller said. “The slightly more upscale single-family listings for move-up buyers with children looking for their forever home just aren’t coming on the market right now, and demand is still very high.”

Statewide, Virginia had a 90-day average of 8,068 active single-family listings as of March 8, 2024, down from 14,471 single-family listings in early March 2020 at the onset of the COVID-19 pandemic, according to Altos Research. That represents a decrease of 44%.

Virginia-Inventory-Line-Chart-Virginia-90-day-Single-Family

In Newcomb’s base metro area of Charlottesville, there were an average of only 277 active single-family listings during the same recent 90-day period, compared to 892 at the onset of the pandemic. In Wise County, there were only 56 listings.

Due to the demand from move-up buyers in Tiller’s area, the average days on market for homes with a median price of roughly $190,000 was just 17 days as of early March 2024.

“For the right home, which is rare to find right now, we are still seeing multiple offers,” Tiller said. “The demand is the same right now as it was during the heart of the pandemic.”

According to Tiller, the tight inventory has caused homebuyers to spend up to six months searching for their new property, roughly double the time it took prior to the pandemic.

For Matt Salway in the Virginia Beach metro area, the tight inventory conditions are creating a rather hot market.

“Depending on where you are in the area, your listing could have 15 offers in two days,” the agent for Iron Valley Real Estate Hampton Roads | Virginia Beach said. “It has been crazy competition for most of Virginia Beach, and Norfolk is pretty hot too, especially for anything under $400,000.”

According to Altos Research, the Virginia Beach-Norfolk-Newport News housing market had a seven-day average Market Action Index score of 52.44 as of March 14, making it the seventh hottest housing market in the country. Altos considers any Market Action Index score above 30 to be indicative of a seller’s market.

Virginia-Beach-Metro-Area-Market-Action-Index-Line-Chart-Virginia-Beach-Norfolk-Newport-News-VA-NC-90-day-Single-Family

Further up the coastline on the vacation destination of Chincoteague Island, Long & Foster agent Meghan O. Clarkson is also seeing a decent amount of competition despite higher prices and interest rates.

“People are taking their time to actually come see things now instead of buying site unseen, and occasionally we see some seller concessions, but the traffic and the demand is still there; you might just work a little longer with people because we don’t have anything for sale,” Clarkson said.

“I’m busy and constantly have appointments, but the underlying frenzy from the height of the pandemic has gone away, but I think it is because we have just gotten used to it.”

While much of the demand that Clarkson’s market faces is for vacation homes and from retirees looking for a scenic spot to retire, a large portion of the demand in Salway’s market comes from military personnel and civilians working under government contracts.

“We have over a dozen military bases here, plus a bunch of shipyards, so the closer you get to all of those bases, the easier it is to sell a home and the faster the sale happens,” Salway said.

Due to this, Salway said that existing-home inventory typically does not come on the market unless an employment contract ends or the owner is reassigned to a different base, which is currently contributing to the tight inventory situation in his market.

Things are a bit different for Tiller and Newcomb, who are seeing a decent number of buyers from other, more expensive parts of the state.

“One of the crazy things about Louisa and Goochland, which are kind of like suburbs on the western side of Richmond, is that they are growing like crazy,” Newcomb said. “A lot of people are coming in from Northern Virginia because they can work remotely now.”

With a Market Action Index score of 50, it is easy to see why people are leaving the Washington-Arlington-Alexandria market for the Charlottesville market, which has an index score of 41.

In addition, the 90-day average median list price in Charlottesville is $585,000 compared to $729,900 in the D.C. area, which Newcomb said is also luring many Virginia homebuyers to move further south.

Median-Price-D.C.-vs.-Charlottesville-Line-Chart-90-day-Single-Family

“They are very accustomed to higher prices, so they are super impressed with the prices we offer here in the central Virginia area,” Newcomb said.

For local buyers, Newcomb said this means they are frequently being outbid or outpriced.

“A couple who is local to the area and has been here their whole life, they are just now starting to get their mind wrapped around the fact that you can’t get a house for $200,000 anymore,” Newcomb said.

As the year heads closer to spring, triggering the start of the prime homebuying season, agents in Virginia feel optimistic about the market.

“We are seeing seasonal trends like we did up through 2019,” Clarkson said. “The market kind of soft launched around President’s Day and it is still building, but I expect it to pick right back up and be in full swing by Easter like it always used to.”

But while they are confident in demand, questions still remain about whether there will be enough inventory to support even more homebuyers entering the market.

“I have a lot of buyers starting to come off the sidelines, but in my office, I also have a lot of people who are going to list their house in the next two to three weeks now that the weather is starting to break,” Newcomb said. “I think we are going to have a good spring and summer.”

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