Despite what appear to be very bullish charts for the midcaps and small-cap stocks, there are troubling signs that should hold us back from a full bullish commitment. Volume and breadth have been contracting, and most troubling is the enthusiasm for lower-quality stocks while a huge increase in interest rates is occurring. This is supported by a 12% jump in bullish sentiment in the AAII Sentiment Survey, which is a contrary indicator.
Investors who read my Daily Trader’s Alert and my monthly Top Stocks to Buy and Stocks to Sell have, in the past month, been repeatedly warned to get out of long-term bonds and bond funds. In an environment where the market is driving interest rates higher, they carry enormous risk.
Thus, there is little need to list the bond funds that you should liquidate — all of them, except those based on inverse strategies. Meanwhile, investors should avoid “bond proxies” like utilities, real estate investment trusts (REITs), and other sectors that in the past year have appreciated as a result of high yields.
Here is our list of stocks to sell in July:
Stock to Sell #1 – Banco Santander (SAN)
Spain’s major commercial bank, Banco Santander (SAN), also operates in the UK, Portugal and Latin America. Earnings for this major European bank have been eroding since 2007 when it reported $2.06 per share. Since then, it earned $1.79 in 2008, $1.45 in 2009, $1.24 in 2010, $0.82 in 2011, and in 2012, it earned $0.28. The major reason for owning SAN is its dividend, which is now $0.61 per share for a 9.3% yield. But unless earnings turn up, the dividend appears to be in jeopardy.
The stock broke down from major support in March, attempted to recover within a triangle, but broke south again in mid-June, gapping below $6.60. Currently, the stock has formed a bearish flag. Sell SAN at the market.
Stock to Sell #2 – CenturyLink (CTL)
Integrated communications company CenturyLink (CTL) is forecast by S&P to have a 1% decline in revenues in 2013 with EBITDA margins down over 40%. Although earnings are projected to increase to $2.75 this year, up from $2.67, the stock has been supported by a 6.1% dividend yield, and that could be in jeopardy.
Half of a wide downside gap that opened in February has been covered by a rally that ended in May. But the stock failed to reverse the downtrend and instead now challenges support at $34. With buying volume diminishing and a flat MACD, CTL should be sold.
Stock to Sell #3 – Corrections Corporation of America (CXW)
Corrections Corporation of America (CXW) is a REIT that owns and operates correctional and detention facilities and prisons in the U.S. It recently lost contracts for facilities in Texas and Mississippi, and that could have a negative impact on earnings and puts its $1.92 dividend (6% yield) at risk.
The stock fell from a high of $39.90 in May to just above its 200-day moving average at $30.95 in only seven weeks. It has closed below its bullish support line and threatens to break lower under the pressure of steady selling. Sell this high-yielder if it closes under the 200-day moving average since there is little support below that important line.
Stock to Sell #4 – Equity Residential (EQR)
Equity Residential (EQR) is a REIT that owns and operates a national portfolio of apartment properties. Its dividend of $1.60 (3.17% yield) has so far been stable. But the stock price has been fluctuating around its 200-day moving average — a bearish indication.
EQR has been in a downtrend since a death cross was executed in October. Selling is increasing and MACD is overbought. Sell EQR at the market.
Stock to Sell #5 – Exelon Corp. (EXC)
Electric utility company Exelon Corp. (EXC) operates in 47 states and Canada. Although earnings are projected at $2.56 for 2013, according to S&P, they are projected to fall 7% in 2014.
The stock has been in a bear market since 2008, and the recent breakdown from a triangle appears to be adding another leg to the downtrend. EXC pays a dividend of $1.24 for a 4.2% yield, but the stock should be sold at the market.
Stock to Sell #6 – Pepco Holdings (POM)
Pepco Holdings (POM) is a utility holding company that supplies electricity and natural gas through its subsidiaries, Potomac Electric, Delmarva Power and Light, and Atlantic City Electric.
It has fallen in just nine weeks from almost $23 to its bullish support line at $19. POM pays a $1.08 dividend for a 5.6% yield. But earnings are expected to fall to $1.18 per share in 2013, down from $1.24 in 2012, and unless earnings improve in 2014, the dividend could be cut. Sell POM on a close under the support line at $19 since there is little support below it.