Why These 3 Stocks Are Top Risks Amid Earnings Downgrades: A Strong Sell Alert

Earnings revisions are a critical leading indicator of corporate health, and investors ignoring downward trends do so at their peril. Today, three stocks—3D Systems Corporation (DDD), Avanos Medical, Inc. (AVNS), and Alibaba Group Holding Limited (BABA)—face stark warnings from Zacks Investment Research, all ranked #5 (Strong Sell) as of July 15, 2025. Their consensus earnings estimates have been slashed by 41%, 8.9%, and 6.5%, respectively, over the past 60 days. This article dissects why these stocks are among the riskiest plays in the market and why investors should prioritize caution—while contrasting their struggles with top-ranked Zacks #1 stocks like Jabil Inc. (JBL), which exemplify resilience.

3D Systems (DDD): A Manufacturing Sector Woe

3D Systems, a leader in 3D printing solutions, has seen its 2025 earnings estimate plummet 41% in just two months. The catalyst? Structural challenges in its core manufacturing sector. Declining revenues—down 10% in fiscal 2024 and 8% in Q1 2025—reflect soft demand and margin erosion (gross margins fell to 35% in Q1 from 40% a year earlier). Tariffs on imported components, particularly from China, have exacerbated cost pressures, forcing the company to withdraw 2025 guidance. A cost-cutting program aims to save $70 million, but investor confidence remains fragile: shares dropped 24% premarket after Q1 results.

Why It's Risky: The sector's reliance on discretionary spending and geopolitical trade tensions makes DDD vulnerable to further downgrades. Avoid until macroeconomic clarity and margin stabilization emerge.

Avanos Medical (AVNS): Tariff Pressures in Medical Tech

Avanos, a provider of medical devices for digestive health and pain management, has seen its 2025 earnings estimate cut by nearly 9%. The culprit? Tariffs and pricing headwinds. While Q1 2025 revenue rose 0.8% to $167.5 million, gross margins fell to 53.6% as hyaluronic acid (HA) product pricing softened. The company slashed its 2025 EPS guidance to $0.75–$0.95, citing tariff impacts.

Why It's Risky: The medical tech sector faces broader challenges, including regulatory hurdles and slowing procedure volumes post-pandemic. AVNS's reliance on China-sourced materials and a narrow product focus amplify execution risks. Investors should brace for further margin squeezes unless tariffs abate.

Alibaba (BABA): China's E-commerce Crossroads

Alibaba's 6.5% earnings estimate cut underscores its struggle with China's slowing economy and regulatory overhang. Despite overseas expansion—e.g., Southeast Asia's Lazada and Turkey's Trendyol—domestic Taobao/Tmall growth has stalled. Cloud and AI initiatives, while promising, face competition from Tencent and U.S.-China trade tensions.

Why It's Risky: Regulatory risks remain unresolved, and the stock trades at a 40% discount to its 2020 peak. While AI-driven cloud growth (up 18% in Q4 2025) offers hope, near-term margin pressures from instant commerce investments and macroeconomic uncertainty warrant caution.

The Zacks Rank #5 Warning: A Historical Red Flag

Zacks Rank #5 stocks historically underperform the market by an average of 24.2% in the subsequent year. This ranking signals deteriorating fundamentals, weak institutional sentiment, and elevated risk of further declines. For DDD, AVNS, and BABA, consensus downgrades are not isolated events but symptoms of systemic sector-specific headwinds. Investors should treat this as a clear sell signal.

Contrast with Zacks Rank #1: Jabil Inc. (JBL)—Growth Amid Uncertainty

While the three stocks falter, Jabil Inc. (JBL) exemplifies Zacks Rank #1 resilience. The electronics manufacturing giant has surged 85% in 12 months, driven by AI-driven demand and strategic U.S. investments. Its Q3 FY25 beat and 19% 2026 earnings growth forecast contrast sharply with DDD's woes.

Why It Shines: JBL benefits from secular trends in cloud infrastructure and onshoring, with a 15% valuation discount to peers. Its robust free cash flow and "Strong Buy" consensus (seven of eight brokers) underscore its appeal as a safer growth bet.

Investment Strategy: Exit the Weak, Embrace the Strong

The message is clear: DDD, AVNS, and BABA are high-risk plays in deteriorating sectors. Investors should:
1. Liquidate Positions: Use rallies to exit these stocks, as further downgrades could amplify losses.
2. Reallocate to Top Picks: Consider Zacks Rank #1 stocks like JBL, which leverage growth trends with stronger fundamentals.
3. Monitor Earnings Revisions: Use tools like Zacks' "Filtered Rank 5" strategy to identify stocks combining strong rankings with positive broker sentiment.

Conclusion

Earnings downgrades are not mere numbers—they are red flags signaling deeper operational and sectoral flaws. For DDD, AVNS, and BABA, the risks are existential. While the broader market may rebound, these stocks lack the catalysts to outperform. Conversely, Zacks Rank #1 stocks like JBL offer a safer path to growth. Investors ignoring this divide risk being left behind—or worse, caught in a downward spiral.