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2 Stocks to Avoid Due to Post-Earnings Weakness

Don't start looking for these names yet.

Price weakness, particularly post-earnings release price weakness, in a good, robust firm is often a good opportunity to buy stock. The difficulty is that bottom-fishing frequently turns an investment into dead money or, worse, a loss that could have been prevented.


While Footlocker and Deere & Company have many attractive characteristics, we believe that flaws in the earnings reports will limit gains in the near to mid-term, if not longer.


More importantly, the analyst community has identified many of the same vulnerabilities and has reduced their price goals and ratings for these stocks.




Analysts continue to rate the stock as a Buy, although it is a weak Buy, down from a hard Buy earlier this year. Marketbeat.com's price target is also declining in 12-, 3-, and 1-month comparisons.

1.Deere & Company Plunges On Supply Chain Woe


Deere & Company (NYSE:DE) had a strong quarter, outperforming the Marketbeat.com average on both the top and bottom lines, but by very narrow margins. The revenue beat was just by 160 basis points, implying that the roughly 11.0 percent rise was already priced into the company, and the projection provided little catalyst for rising share prices.


While the business boosted its year-end projection, it only lifted the outlook modestly, owing primarily to unusual items recognized during the quarter. The bottom line is that performance and forecast are "underwhelming," as BMO analyst John Joyner put it, and it is already being priced into the market.


Since the release of the Q2 earnings report, Deere & Company has received at least eight analyst comments, none of which have been positive. All eight have a price target reduction, with the Marketbeat.com consensus price target falling in the last 30 days and being flat in the last 90.


Based on the results and the economic forecast, we don't expect that tendency to alter anytime soon, and it may deteriorate before it improves. Demand for Deere & Company products continues strong, but supply chain and production-related interruptions are projected to persist through the conclusion of the fiscal year.




2.Ross Stores - No Way To Save With These Prices


Ross Stores (NASDAQ:ROST) shares plummeted sharply after the company's first-quarter earnings release revealed top and bottom-line problems. The failure was all the more shocking given the inflationary environment, which should have pushed buyers to bargain merchants.


The issue may be that Ross Stores' customer base is among the hardest hit by inflation, which could lead to deterioration later in the year. The company has already reduced its guidance, and we believe it will do so again if fuel prices do not fall.


Analysts continue to rate the stock as a Buy, although it is a weak Buy, down from a hard Buy earlier this year. Marketbeat.com's price target is also declining in 12-, 3-, and 1-month comparisons. Since the announcement, at least nine analysts' notes have been issued, with all nine dropping their price targets and one, Telsey Advisory Group, downgrading the company to Marketperform from Outperform, and we don't believe they will be the last.


Ross Stores' price movement is rebounding from the new bottom, but we don't believe investors should chase the action. While the comeback is gaining strength, it is still considerably below what we believe to be a very strong resistance objective.


Without a change in the fundamental picture, we believe price action will be capped at $87.75 and will then trade sideways within a range. Investors interested in this stock should wait for the price to revisit the lows near $70.




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