Earnings Exodus: 3 Stocks to Ditch Before Q1 Reports Wreak Havoc

Stocks to sell

Earnings season is drawing to a close, with more than 90% of stocks in the S&P 500 index having reported their first-quarter financial results. However, some big names still need to issue their Q1 prints. For a few of these companies, the stakes are high. Analysts and investors will be scrutinizing the data for signs of improvement after past poor performance. That means there may be some stocks to sell before earnings reports come out.

Management at these troubled companies will be in the spotlight and looking to redeem themselves with their Q1 numbers. Investors have shown that they are not in a forgiving mood when it comes to even the slightest earnings misstep by a company. Stocks are falling 15% or more in a day on missed profit and revenue figures, as well as weak guidance. Not every company will meet the expectations that have been set for them.

Here are three companies that will release their Q1 results within the next week, but that investors might want to consider selling now.

Home Depot (HD)

a Home Depot store is seen from the outside

Source: Cassiohabib / Shutterstock.com

There are a couple of reasons to sell Home Depot (NYSE:HD) stock before the company reports its Q1 earnings on May 14. With its last print, Home Depot lowered its guidance, saying it expects sales to grow 1% this year. That was about half the growth forecast on Wall Street. Executives warned that they continue to see a pullback in consumer spending on big-ticket items due to inflation and high interest rates.

In addition to the soft outlook, Home Depot is undertaking the biggest purchase in its history, paying $18.25 billion for privately held SRS Distribution as it bets its future on sales to professional contractors rather than homeowners. Sales to contractors are viewed as more stable than sales to homeowners, whose spending can fluctuate with the economy and housing market.

While management says the SRS Distribution purchase will increases its total addressable market by $50 billion, the deal is not without risk. It still needs regulatory approval. HD stock is flat on the year, down 1% since January. Investors trying to hedge their bets should consider HD one of the stocks to sell before earnings are published.

Canada Goose (GOOS)

canada goose (goos) logo on the sleeve of a jacket

Source: rblfmr / Shutterstock.com

Things are not going well at Canada Goose (NYSE:GOOS) heading into its Q1 print on May 16. The company that specializes in winter parkas has reported a string of financial results that missed analyst expectations, sending its stock lower. In the last 12 months, GOOS stock has declined 46%, including a 3% decline so far in 2024. At the end of March, Canada Goose announced that it is cutting 17% of its global workforce.

The job cuts will impact employees at the company’s corporate headquarters, though it’s not clear exactly how many people will be let go. Canada Goose had 915 employees at the end of last year, according to securities filings. The headcount reduction comes as consumers pullback on discretionary spending amid high inflation and as global warming lessens the impact of winter.

In a press release, Canada Goose said the job cuts will help it achieve cost savings and become more efficient. In the past five years, GOOS stock has declined 77%. It’s unlikely it will see a dramatic turnaround, so GOOS looks like one of the stocks to sell before earnings come out later this week.

Palo Alto Networks (PANW)

Palo Alto Networks (PANW) logo on corporate building

Source: Sundry Photography / Shutterstock.com

Management at Palo Alto Networks (NASDAQ:PANW) needs to pull a rabbit out of their hat when the company reports its Q1 results on May 20. The cybersecurity firm’s last earnings report was a disaster, sending PANW stock down 19% in one day. It was the stock’s worst performance ever. So far this year, Palo Alto Networks’ share price has increased less than 5%.

The company did manage to beat Wall Street forecasts with its financial results. But problems came when management lowered their full-year guidance. The company said it expects full-year billings of $10.1 billion to $10.2 billion. That was down from previous guidance of $10.7 billion to $10.8 billion. Palo Alto Networks also expects full-year revenue between $7.95 billion and $8 billion, lower than a previous guide of $8.15 billion to $8.20 billion.

Management said the lowered guidance was due to a shift in strategy and wanting to accelerate growth in artificial intelligence (AI) products. Palo Alto Networks is moving quickly to adopt AI technologies and gain market share in the fast-growing segment. None of this information sat well with investors. The upcoming Q1 print needs to redeem PANW stock.

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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