Wolfe Research warns investors to avoid these potentially explosive low-quality stocks. Using the company’s fourth-quarter results, Wolfe Research identified stocks that are likely to underperform using an earnings quality score, which looks at a number of variables including sentiment, the index, and the index. different valuations and financial ratios. “With the Fed tightening policy, economic growth slowing and recession risks increasing, we expect more stock booms in the coming quarters. Our work on this report. focus on balance sheets and cash flow statements as leading indicators of potential missed earnings or other income reporting issues,” Wolfe analysts led by Chris Senyek wrote on Wednesday. The company analyzed about 2,400 US companies with market capitalizations over $250 million. From this group, Wolfe Research found names in the bottom 10% of the earnings quality score. Such stocks, on average, underperform about 4% per year. Wolfe Research also identifies names with high short-term interest relative to the company’s sector. Shorting a stock means that investors are betting that it will decrease in value. When investors short a stock, they first borrow the shares and sell them at market price. If the share price falls, the investor can buy back the stock at a lower cost and then profit from the difference. Short-term interest is a measure of how many shares of a certain company are being sold short by investors. While high short-term interest rates mean investors are pessimistic about the stock’s prospects, seasoned investors can also take advantage of this information to profit. Take a look at the 10 low-quality, high-risk names on their list. Online dating company Match Group has made it to Wolfe Research’s list of high-risk stocks. Shares of Match Group, whose brand portfolio includes Tinder, fell 7.2% in 2023. The company has an earnings quality score of just 11. The research firm notes that Match Group is one of the companies with consistent earnings adjustments that boost GAAP, or generally accepted accounting principles, earnings of at least 20% for more than nine of the past 12 consecutive quarters. This is an additional negative sign for stocks, according to the study, as consistent differences in GAAP and non-GAAP earnings may indicate a lower likelihood of sustaining those earnings. According to Wolfe, Bumble, a rival dating company, also makes the list with an earnings quality score of 18. New Fortress Energy is another stock that could be at risk. The company’s shares are down more than 33% year-to-date. Wolfe also found the company has the lowest earnings quality score of all tracked energy stocks, at just 2. Undoubtedly, 80% of analysts who rate this stock give the stock a buy rating. or redundant, according to FactSet. The median price target for New Fortress Energy stock is around $53, which is an 88% increase from Wednesday’s closing price. Lithium maker Albemarle is another name on the list with a negative outlook. The company has a short-term yield of 4.6% and an earnings quality score of just 1. On Tuesday, Albemarle announced its bid to acquire Liontown Resources, which holds two lithium deposits in Australia. However, the bid was quickly rejected. Albemarle shares are up 3.5% in 2023. Other names on the high-risk list include sports brand Lululemon Athletica, electric vehicle maker Tesla and pharmaceutical company Catalent. —Michael Bloom of CNBC contributed to this report.