The Q2 earnings season is approaching and the fact that the big shots across industries have already trimmed their second-quarter and 2020 predictions is alarming. Investors, who are by now riding a rollercoaster, have fastened their seatbelts more tightly to experience a bumpier road ahead.
Since the first-quarter results were announced, the benchmark indices have risen quite a few times including on the $10 trillion in monetary and fiscal stimulus, improving job markets and at times on enthusiasm surrounding COVID-19 related healthcare advancements. However, with the number of new cases escalating with each passing day, the enthusiasm has only managed to earn momentary gains for investors.
In a nutshell, the entire coronavirus-led market story is getting more and more confusing day by day, making investors overreact on anything and everything.
Two Contrary Situations to Mull On
There are a number of coronavirus-hit stocks across several industries that continued to plummet even when the market was getting those temporary kicks. These stocks have at times plummeted by more than 20% since March (when COVID-19 was declared a pandemic), confusing investors about the extent of downside still left.
We may take the example of Chembio Diagnostics in this regard. While a number of point-of-care (POC) diagnostic testing companies focused on infectious testing are gaining from the COVID-19-led market demand for clinical testing, this stock has witnessed more than 50% pullback over the past three months.
The other side of the story is equally baffling. With global lockdowns, production and supply blockages leading to massive job loss and gradually diminishing demand for non-COVID-19-products and services, domains like hotels, travel, consumer discretionary and automotive were most affected. However, there are a few stocks within these domains, which have steadily gained through the market instabilities. Marriot International (MAR - Free Report) can be named in this regard, which has seen nearly 50% surge in its stock price over the past three months.
Get Rid of the Losers to Grab the Unanticipated Outperformers
Below we have discussed three worst-performing stocks from industries, which fared better than others amid the pandemic. We will be replacing these stocks with companies from sectors, which are considered to be among the major sufferers of the COVID-19 crisis.
3 Stocks to Forego
To narrow down the list, we have selected stocks with more than $1 billion of market cap, Zacks Rank #4 (Sell) or #5 (Strong Sell) along with a VGM Score of D or F.
Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
The first stock that one should avoid now is investment trust Shaftesbury PLC (SHABF - Free Report) , which focuses on food, beverage, retail and leisure. This $2.3 billion market cap stock currently carries a Zacks Rank #4 and has a VGM Score of F. Over the past three months, while the broader real estate operations industry has witnessed a rise of 29.1%, this stock plunged 38.4%.
The next stock on our list is software product maker, Forescout Technologies, Inc. (FSCT - Free Report) . IT delivers device visibility and control platform. While the IT Services industry is one of the better performing industries amid the pandemic, the performance of this company has not been up to the mark. This $1.04 billion market cap stock currently carries a Zacks Rank #4 and has a VGM Score of D. Over the past three months, while the broader industry has surged 50.8%, this stock plunged 33%.
The third company onthe list is beauty products giant Coty, Inc. (COTY - Free Report) with a market cap of $3.4 billion. The company’s business of late has been majorly affected by weakness across all segments and channels, stemming from coronavirus-led concerns like salon closures and retail store closures. This stock currently carries a Zacks Rank #4 and has a VGM Score of D. Over the past three months, while the broader cosmetics and toiletries industry has gained 27.3% on increasing demand for toiletries due to stockpiling, this stock has plunged 6%.
3 Stocks to Grab
In order to zero in on the winners, we have narrowed down the list by selecting stocks with market cap of more than $1 billion, Zacks Rank #1 or #2 and a VGM Score of A or B.
We pick Meritor, Inc. (MTOR - Free Report) first, a global automotive parts manufacturer and supplier. Despite the ongoing market concerns, this company is on track to achieve M2022 goals that focus on new business opportunities, margin expansion and cost-containment efforts. This $1.43 billion market cap stock currently carries a Zacks Rank #1 and has a VGM Score of A. Over the past three months, this stock has gained a whopping 53.5%, outperforming the broader Automotive-Original Equipment industry’s growth of 45.7%.
The second stock on our list is Malibu Boats, Inc. (MBUU - Free Report) , a developer and marketer of a diverse range of recreational powerboats, including performance sport, sterndrive and outboard boats. Despite the substantial headwinds faced by the leisure and recreation industry, this company is performing well by aligning its production to changing demand levels. This $1.06 billion market cap stock currently carries a Zacks Rank #1 and has a VGM Score of A. Over the past three months, this stock has skyrocketed 172.6%, almost double the broader industry’s growth of 91%.
Our final pick for this list is Dycom Industries Inc. (DY - Free Report) . The company provides diverse services such as engineering, construction, maintenance and installation services for the cable and telephone companies. This $1.29 billion market cap stock currently carries a Zacks Rank #2 and has a VGM Score of B. Over the past three months, this stock has rallied 66.6%, almost double the broader Building Products - Heavy Construction industry’s growth of 31%.
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