Don’t Get Stuck with These 3 Declining Stocks

Source: shutterstock.com/Black Salmon

The market has begun to rebound in recent days due to the U.S. Federal Reserve keeping interest rates steady, signaling the rate hike cycle has possibly come to an end. This is a welcome change since the sharp sell-off that began in late July triggered by inflation fears and the potential impact on elevated rates on economic growth and company earnings. However, although a sustained market rally may precipitate, some investors may still want to sell some of their underperforming or overvalued stocks before the year ends.

Here are three declining stocks investors should not get stuck with.

CVS Health Corporation (CVS)

CVS Health Corporation (NYSE: CVS) is a leading pharmacy chain and health care provider in the U.S. with more than 9,900 retail pharmacies and 1,100 walk-in clinics in operation. However, CVS Health Corporation has been facing headwinds from mergers and acquisitions (M&A) restructuring issues and other burgeoning operating costs. For example, in the first quarter of 2023, the company reported an 11% year-over-year increase in revenue to $85.3 billion. However, adjusted operating income decreased by 5.1% YoY to $4.4 billion due to costs associated with the acquisitions of Signify Health and Oak Street Health. Similarly, in their recent fiscal quarter results, CVS beat revenue estimates due to increased healthcare services but lowered guidance on unadjusted earnings.

The retail pharmacy is also facing increased competition from new players in the pharmacy space. Blue Shield of California announced it would drop CVS Health’s Caremark, the pharmacy-benefit manager it currently uses which negotiates drug prices and wraps in other services such as a mail-order pharmacy and will instead partner with Amazon’s (NASDAQ:AMZN) pharmacy.

CVS Health’s shares are down 22.5% YTD, which is slightly better than where the company’s shares were when I last covered it, but still disappointing. Investors should definitely decide not to get stuck with this stock as future headwinds continue to prevail.

Tenable (TENB)

Tenable (NASDAQ:TENB) is a cybersecurity company that provides solutions for vulnerability management, threat detection, and compliance monitoring. Because of the technology sub-vertical Tenable inhabits, the firm faces fierce competition from other cybersecurity players like CrowdStrike (NASDAQ:CRWD), Palo Alto Networks (NASDAQ:PANW), and Qualys (NASDAQ:QLYS), which offer more comprehensive and integrated platforms.

Moreover, Tenable has had to deal with a difficult macroeconomic environment that has caused elongated sales cycles. Though this is not out of the norm in the cybersecurity space right now, difficulty in acquiring new customers and getting existing ones to spend dish out more cash on services will disproportionately impact companies like Tenable because of its lack of profitability and relatively slower top-line growth rate.

Shares have slipped 8.7% since the start of the year and investors should expect them to slip even more as the company recently announced weak Q4 guidance.

Perficient (PRFT)

Perficient (NASDAQ:PRFT) is a digital transformation consulting firm that helps clients design, develop, and implement digital solutions across various industries. The company boasts a diverse portfolio of services, including cloud computing, data analytics, artificial intelligence, e-commerce, and customer experience.

However, being a digital services business, Perficient faces stiff competition in crowded space of medium sized firms and legacy players, such as Accenture (NYSE:ACN), IBM (NYSE:IBM), and Deloitte, which have more resources and scale to serve global clients.

Furthermore, Perficient has been experiencing slowing revenue growth and margin contraction on a quarter-to-quarter basis throughout 2023. The stock is trading down 14.5% year-to-date, while boasting a moderate forward-looking price-to-earnings ratio of 14.0x. Still, investors should sell this stock and look for more attractive digital transformation stocks.

On the date of publication, Tyrik Torres 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.

Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.

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