2 Downgraded Stocks to Steer Clear of This Week

The U.S. economy added 263,000 jobs in September 2022, surpassing the consensus estimate of 250,000 jobs, expectedly prompting the Fed to maintain its hawkish stance in the coming months.

Brian Jacobsen, the senior investment strategist at Allspring Global Investments, believes, “The employment situation is still good, and that might be a little frustrating to the Fed. The Fed thinks we need more people unemployed in order to make sure inflation comes down and stays down.”

Moreover, according to Federal Reserve Governor Lisa Cook, more hikes are essential to achieve the 2% inflation target rate, which remains a priority for the Fed. The stock market could witness further volatility amid rising recession odds.

Credit Suisse strategists lowered their year-end goal for the S&P 500 by 10% to 3,850 in the face of surging macro headwinds.

Given the grim outlook, we think fundamentally weak stocks Bed Bath & Beyond Inc. (BBBY) and Rite Aid Corporation (RAD), which were recently downgraded in our POWR Ratings system, might be best avoided now.

Bed Bath & Beyond Inc. (BBBY)

BBBY and its subsidiaries operate a chain of retail stores and sell a wide assortment of merchandise in the Home, Baby, Beauty, and Wellness markets. As of August 27, 2022, the company had 955 stores.

On September 25, 2022, Pomerantz LLP started investigating claims on behalf of investors of BBBY. Moreover, on September 7, 2022, Kaplan Fox & Kilsheimer LLP declared that the firm is investigating claims on behalf of investors of BBBY.

The lawsuits allege Ryan Cohen of investment firm RC Ventures LLC, in conspiracy with the company’s CFO and others, engaged in a fraudulent scheme to artificially inflate the price of the company’s publicly traded stock.

BBBY’s adjusted net sales came in at $1.44 billion for the second quarter that ended August 27, 2022, down 27.6% year-over-year. Its adjusted net loss came in at $256 million compared to a net income of $4 million in the year-ago period. Also, its adjusted loss per share came in at $3.22 compared to an EPS of $0.04 in the prior-year period.

BBBY’s revenue is expected to decrease 23.2% year-over-year to $6.04 billion in 2023. Its EPS is expected to decline 713% year-over-year to negative $8.78 in 2023. It missed EPS estimates in three of the trailing four quarters. Over the past year, the stock has lost 65% to close the last trading session at $5.42.

BBBY’s POWR Ratings reflect its poor prospects. It has an overall grade of F, which indicates a Strong Sell. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Also, the stock has an F grade for Stability and Sentiment and a D grade for Quality. Click here to access the additional POWR Ratings for BBBY (Growth, Value, and Momentum). BBBY is ranked #57 out of 61 stocks in the Home Improvement & Goods industry.

Rite Aid Corporation (RAD)

RAD and its subsidiaries operate a chain of retail drugstores in the United States. The company operates through two segments, Retail Pharmacy, and Pharmacy Services.

RAD’s revenues came in at $5.90 billion for the second quarter that ended August 27, 2022, down 3.5% year-over-year. Its adjusted net loss came in at $34.42 million, up 56.7% year-over-year, while its adjusted loss per share came in at $0.63, up 53.7% year-over-year.

RAD’s revenue is expected to decrease 3.4% year-over-year to $23.73 billion in 2023. Its EPS is estimated to drop 17.9% year-over-year to negative $1.78 in 2023. Over the past year, the stock has lost 65.9% to close the last trading session at $4.64.

RAD has an overall D grade, equating to Sell in our POWR Ratings system. Also, it has an F grade for Sentiment.

Click here to access the RAD rating for Growth, Value, Momentum, Stability, and Quality. It is ranked last among the four stocks in the Medical – Drug Stores industry.

BBBY shares were trading at $5.28 per share on Monday morning, down $0.14 (-2.58%). Year-to-date, BBBY has declined -63.79%, versus a -23.28% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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