3 (More) Stocks to Sell After Dreadful Q3 Earnings

Stocks to sell

The third-quarter earnings train rumbles along. While the majority of Q3 prints have been better than expected, several have been absolutely dreadful, putting analysts and investors in a foul mood and leading all the major stock indexes to post declines for October. The reasons for the poor financial results vary and include everything from macroeconomic headwinds and a downturn in consumer spending to poor execution on the part of management and the mispricing of products. As always, companies that miss Wall Street expectations are being punished, and their share prices are falling. Investors would be smart to pay close attention to the Q3 earnings results and price movements in the stocks they own. Here are three (more) stocks to sell after dreadful Q3 earnings.

Canadian National Railway (CNI)

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Canadian National Railway (NYSE:CNI) delivered gruesome third-quarter financial results, announcing a 24% decline in its profit from a year earlier due largely to a strike at seaports along Canada’s west coast this July. The strike shut down more than a dozen shipping terminals that handle trade from the U.S. and throughout Asia for 13 days during Q3. That hurt the rail operator’s cargo volumes, as did wildfires and flooding across Canada during the summer months. As a result, Canadian National Railway reported Q3 net income, or profit, of CAD 1.11 billion, down from CAD 1.46 billion a year earlier.

The company’s revenues in the July through September quarter fell to CAD 3.99 billion from CAD 4.51 billion a year ago. The guidance offered by the railway company was muted, with executives saying during an earnings call with analysts and media that they now expect flat to slightly negative earnings for all of this year. A recent strike along the St. Lawrence Seaway, impacting the transport of goods through the Great Lakes region, is forecast to harm the company’s Q4 print. CNI stock is down 11% year-to-date. Time for investors to sell.

Levi Strauss (LEVI)

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Levi Strauss’ (NYSE:LEVI) third-quarter earnings narrowly beat Wall Street forecasts. However, the company’s stock still got knocked lower after the blue jeans maker lowered its forward guidance. Levi’s reported earnings per share (EPS) of 28 cents, slightly better than consensus forecasts of 27 cents a share. Revenue in Q3 totaled $1.51 billion, which was below expectations for $1.54 billion, according to data provided by FactSet. The clothing retailer’s gross margins declined 1.3 percentage points to 55.6%, driven by higher production costs and ongoing discounts offered to move merchandise.

While the Q3 print wasn’t great, the stock dropped 3% after the company lowered its revenue forecast for the remainder of 2023. Levi’s said it now expects revenue to either be flat or to grow by 1%, which is below previous forecasts for growth of 1.5% to 2.5% in Q4 and less than the 1.5% growth that analysts had penciled in for the company. This was the second straight quarter in which Levi’s has lowered its forecast, citing a challenging consumer environment amid high-interest rates. Levi’s is also struggling to switch from its traditional wholesale-focused sales strategy to a direct-to-consumer model.

LEVI stock has declined 11% so far this year. Over five years the stock is down nearly 40%.

Rivian Automotive (RIVN)

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Rivian Automotive (NASDAQ:RIVN) is another stock that got hurt due to lowered guidance. The electric truck maker’s share price fell 10% after management lowered their forward guidance and announced plans to raise additional cash. Rivian executives said that sales in the current fourth quarter of the year are likely to be lower than analysts’ forecasts. At the same time, the company said it plans to issue $1.5 billion in convertible notes, which is debt that can be converted into stock. The move will dilute the holdings of current shareholders, leading many of them to reach for the sell button.

Rivian also highlighted a major cash problem, which has RIVN stock under pressure. The company noted in its most recent earnings print that it sold its electric trucks at an average loss of $33,000 this year. At the same time, Rivian has burned through much of its cash pile in recent months. Management said they are focused on lowering costs and streamlining production and have maintained their previously stated goal to become profitable in 2024. However, it all seems like too little, too late for this company.

RIVN stock has declined 55% over the last 12 months and is now trading 80% below its 2021 initial public offering (IPO) price. This one is definitely a stock to sell.

On the date of publication, Joel Baglole did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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