3 (More) Stocks to Sell After Horrific Q3 Earnings

3 (More) Stocks to Sell After Horrific Q3 Earnings

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The third quarter earnings train is underway. While the majority of third-quarter results were better than expected, many were downright awful, putting analysts and investors in a bad mood and prompting all major stock indexes to post declines for October. The reasons for poor financial results vary and include everything from macroeconomic headwinds and declining consumer spending to poor execution by management and poor product pricing. As is always the case, companies that fail to meet Wall Street’s expectations are punished, and their stock prices decline. Investors would be smart to pay close attention to third-quarter earnings results and price movements in the stocks they own. Here are three (more) stocks to sell after horrific third-quarter earnings.

Canadian National Railway (CNI)

Image of a Canadian National Train (CNI) heading toward the photographer.

Source: Eric Boermeier / Shutterstock.com

Canadian National Railway (New York Stock Exchange:CNI) shocking third-quarter financial results, announcing a 24% decline in its profits compared to the previous year, largely due to a strike at seaports along Canada’s west coast in July of this year. The strike closed more than a dozen shipping terminals handling trade from the United States and throughout Asia for 13 days during the third quarter. That hurt the rail operator’s freight volume, as did wildfires and floods across Canada during the summer months. As a result, Canadian National Railway reported third-quarter net income or profit of C$1.11 billion, down from C$1.46 billion a year earlier.

The company’s revenue in the July-September quarter fell to C$3.99 billion from C$4.51 billion a year ago. Guidance provided by the railroad was muted, with executives saying during an earnings call with analysts and media that they now expect flat to slightly negative earnings throughout this year. The recent strike along the St. Lawrence Seaway, which affected freight transportation across the Great Lakes region, is expected to hurt the company’s printing in the fourth quarter. CNI stock is down 11% year to date. It’s time for investors to sell.

Levi Strauss (Levi)

A collection of white T-shirts with the Levi's (LEVI) logo.

Source: Babin Lab / Shutterstock.com

Levi Strauss (New York Stock Exchange:Levi) Third-quarter earnings narrowly beat Wall Street expectations. However, the company’s stock is still falling after the blue jeans maker lowered its forward guidance. Levi’s reported earnings per share (Earnings per share) 28 cents, slightly better than the consensus forecast of 27 cents per share. Total third-quarter revenue was $1.51 billion, below expectations of $1.54 billion, according to data provided by FactSet. Apparel retailers’ gross margins fell 1.3 percentage points to 55.6%, driven by higher production costs and ongoing discounts offered for moving merchandise.

While third-quarter results weren’t great, the stock fell 3% after the company cut its revenue forecast for the remainder of 2023. Levi’s said it now expects revenue to be flat or grow 1%, which is lower than previous forecasts for Growth of 1.5% to 2.5% in the fourth quarter and lower than the 1.5% growth that analysts expected for the company. This was the second straight quarter in which Levi’s lowered its forecasts, citing a challenging consumer environment amid rising interest rates. Levi’s is also struggling to shift from a traditional wholesale-focused sales strategy to a direct-to-consumer model.

LEVI stock is down 11% so far this year. Over five years, the stock has fallen approximately 40%.

Rivian Automotive (RIVN)

RIVN R1T All-Electric Pickup Truck in Forest Green

Source: Photography by Ruschitzky / Shutterstock.com

Rivian Cars (Nasdaq:Raven) is another stock hurt by underguidance. The electric truck maker’s stock price fell 10% after management cut its 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’ expectations. Meanwhile, the company said it plans to issue $1.5 billion in convertible bonds, which is debt that can be converted into equity. The move will dilute existing shareholders’ holdings, prompting many of them to hit the sell button.

Rivian also highlighted a major cash problem, which has put RIVN shares under pressure. The company noted in its most recent earnings report that it sold its electric trucks at an average loss of $33,000 this year. Meanwhile, Rivian has burned through a lot of its cash in recent months. Management said they are focused on cutting costs and streamlining production and have maintained their previously stated goal of becoming profitable in 2024. However, it all seems like too little, too late for this company.

RIVN stock is down 55% over the past 12 months and now trades 80% below its 2021 IPO (IPO) price. This is definitely a stock to sell.

On the date of publication, Joel Bagloul did not (directly or indirectly) hold any positions in the securities mentioned in this article. The opinions expressed in this article are the author’s own and subject to InvestorPlace.com’s publishing guidelines.

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

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