Dead Cat Bounce: 3 Stocks to Sell Before They Plunge Again
A dead cat bounce is when a falling stock sees a short-term recovery, but is ultimately likely to head lower. It comes from the idea that “even a dead cat will bounce if it falls from a great height.” The stock market does not move in a straight line, and there are many ups and downs whichever way a stock moves. Thus, investors would be best served understanding which stocks are more akin to dead cats than recovery bids, particularly in this market.
Many stocks with horrible fundamentals could plunge much further in the coming months. I think the wisest thing to do with these stocks would be to press the sell button before the rest of the market resumes doing so.
That said, this is the stock market, after all. Indeed, I’d warrant caution if you’re going short on any of these stocks. But with that said, here are the three stocks to sell for those trying to decide whether to buy the dip in these dead cat bounces.
Calix (CALX)
Calix (NYSE:CALX) provides cloud and software platforms for broadband service providers. While it was one of the pandemic’s top performers, Calix has lost its luster, plunging 54% from its peak. I believe more pain lies ahead for this former high-flyer.
In Q1, Calix missed revenue estimates by nearly 1% as its top line slid 9.5% year-over-year to $226.3 million. Management admitted larger customers are reevaluating capital spending plans, a trend that will likely persist into Q2.
Analysts forecast Calix’s revenue to decline 18% this year alongside a staggering 64% drop in its earnings per share. And while 2025 is expected to bring relief, estimates are rapidly deteriorating. Over the past 90 days alone, analysts have slashed year-end revenue projections by 10% and nearly halved earnings per share targets.
Calix claims it will be a prime beneficiary of the government’s upcoming BEAD stimulus program. However, with BEAD funds not expected to flow until 2025, I believe investors would be wise to exit this struggling tech name before more downward revisions bring pain.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG) makes hydrogen fuel cell systems for electric vehicles. The company’s stock has plummeted from its highs during the EV boom three years ago. In today’s tougher economic climate, many automakers could ditch the EV sector due to low sales volume. While potential Federal Reserve rate cuts could revive some EV producers, I don’t see Plug Power benefiting from such a recovery. The company has abysmal financials. Plug’s Q1 report was disastrous, with revenue plunging 43% year-over-year to just $120 million.
Plug’s net loss ballooned to a staggering $296 million in the quarter alone. Cash on hand has also dwindled to a mere $173 million.
Analysts don’t expect the company to reach profitability until 2027 at the earliest, and that assumes major automakers adopt its hydrogen technology. I think that’s a big if. Plug Power looks like a sinking ship to me, and it’s among my top stocks to sell for this reason.
Accelerate Diagnostics (AXDX)
Accelerate Diagnostics (NASDAQ:AXDX) makes rapid antibiotic susceptibility testing systems. It is a company focused on solving antibiotic resistance. That’s a pretty big worldwide problem, but I’ll soon get into why it might not be the best market to target.
While the stock has seen a small 40% bounce over the past month, I believe this is nothing more than a dead cat bounce before shares plunge to new lows.
In Q1, revenue grew a paltry 3.9% year-over-year to just $2.9 million. Gross margins contracted sharply from 36% to 25%. And the company is still bleeding cash. Accelerate recently posted a net loss of $14.2 million.
Management is hyping up its Wave platform, but I’m not buying it. Even if Wave gets approved, the addressable market is limited since antibiotic resistance is mainly an issue in developing countries. Plus, the pre-clinical trial has already been delayed due to contracting issues. I expect more delays ahead. The company’s Altman-Z score is also only getting worse.
With AXDX stock still down a staggering 88% over the past year and the company’s fundamentals showing no signs of improvement, it’s definitely one of the top stocks to sell in my books.
On the date of publication, Omor Ibne Ehsan 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.
