As we enter the final stretch of 2013, investors are likely to see stocks continue to rise thanks to seasonal strength for the market.
But soon after, we could be in for a heavy dose of volatility as market leadership changes and investors start to protect their 2013 gains.
Some stocks might be in for a serious spill, either because they’re grossly overbought or because they’re already lagging the market and about to see the bottom fall out.
It’s not just going to be small-cap momentum darlings that implode, either. Expect to see some fireworks in some of the biggest names on Wall Street. In fact, some blue chips could realistically fall 10% or even 20% in the next few months if current bearish trends bear out.
To protect your portfolio, here are seven big-name stocks to sell now before things get ugly.
After a strong start to the year, JP Morgan Chase (JPM) has rolled back about 7% since early August on a series of bad legal news that looks to take a bite out of company profits.
And while any one of these fines isn’t a big deal, the collective weight of these judgements — and the increasing frequency of lawsuits against big banks like JPM — means that future pressures could put the screws to margins. The threat of increased regulation and oversight is a very real possibility in the medium term.
Consider that JPM just reported a $380 million loss on the quarter, thanks to some $9.2 billion in legal expenses and a cash hoard set aside for future settlements.
CEO Jamie Dimon has long been considered the best bank exec out there, leading the company through the great recession with a deft hand. However, now that the landscape has changed and investors have already bid JPM stock up above its peers, you may want to steer clear of this financial stock.
Cisco (CSCO) stock is up about 14% year-to-date, so some folks might not think this blue chip tech giant is a dud. However, CSCO is off 15% since mid-August on soft numbers and ugly sentiment.
Specifically, Cisco sold off after its Q4 earnings in August, which offered weak guidance. Yes, the stock met the market on profits … but a continued sluggishness in Cisco sales and broader corporate IT spending don’t bode well for the outlook of this stock.
The company responded by laying off 4,000 more workers; however, that didn’t prevent a spate of downgrades including an “underperform” rating from Credit Suisse and a downgrade from analyst firm MKM.
Continued softness in competitors like Oracle (ORCL) and IBM (IBM) hints that the enterprise IT business is suffering, and CSCO’s outlook confirms that. So investors better be prepared for a bumpy ride over the next several months — particularly if the market experiences a broad selloff.
Exxon (XOM) is the king of the oil industry, an entrenched player valued at almost $400 billion. But stability and scale aren’t enough to make a stock like XOM a buy.
In 2013 this stock has been stable but very disappointing, up less than 3% despite a rally for 23% for the S&P 500. Furthermore, the dividend yield at Exxon is just 2.8% — only slightly better than 10-year Treasuries.
There has been a boom in domestic production of oil and gas at Exxon, but the megacap stock is actually seeing a lot of trouble on the top line thanks to soft energy prices. Those prices contributed to an 18% earnings slide, and margins remain under pressure thanks to the increased cost of exploration and the decreased value of the oil and gas XOM brings to market.
Bulls will say a 20% decline in Exxon is impossible. However, after XOM stock traded for more than $95 in July, shares need only drift down to $76 to mark a decline of that magnitude. Yes, that would be a new 52-week low … but isn’t outside the realm of possibility.
What can you say about BlackBerry (BBRY) other than this stock isn’t long for this world? Despite a buyout offer of $9 per share from Canadian investing icon Prem Watsa and his Fairfax Financial firm, the stock regularly trades under $8 because investors simply don’t think there is enough will or financing to get the deal done at $9.
Oh yeah, and then there’s the fact that the company becomes worth less and less with each passing day as restructuring charges mount and BBRY continues to bleed cash.
After all, the company launched a jumbo Z30 device in September even as it was circling the drain — a testament either to the naivety or stubbornness of executives who thought anyone would want to sign on for a new device from an old company about to evaporate.
BlackBerry has taken to the internet and print newspapers with an ad blitz to insist it won’t disappear … but who are you going to believe — BlackBerry marketing or a stock that is suffering terminal decline in revenue and device sales?
If you are thinking of bargain hunting in BBRY for the buyout premium, think again. Anyone who finds part of BlackBerry attractive can simply wait the company out until it sells itself for parts at fire sale prices, or even until it descends into bankruptcy when they can pick the carcass clean.
BBRY is down 35% in 2013 and 55% from its spring highs, but don’t think that means it can’t go lower.
Another warning of ill-advised bargain hunting should be issued about JCPenney (JCP).
This embattled retail stock has been brutalized since former CEO Ron Johnson attempted to reinvent the company by doing away with its tried-and-true model of occasional sales. JCP stock is off about 65% from its highs in February and shows no sign of slowing down its negative momentum.
As recently as two weeks ago, JCP sold off sharply on bankruptcy rumors — and frankly, there’s good reason for those rumors. We’re seeing reports that suppliers and financers are tightening credit terms and shortening payment windows out of fears JCP won’t be around much longer.
We saw a dead cat bounce at the end of October, with JCP rising 15% in a few days on no news. But don’t be faked out — JCP is a dog and you shouldn’t go anywhere near it.
Heavy equipment manufacturer Caterpillar (CAT) has been hit hard by the slowdown in metals and mining this year. CAT stock is already off 7% in 2013, and more declines are in order going forward.
Four consecutive earnings misses tell you everything you need to know about Caterpillar, and three of those four were double-digit misses — proving that things are much worse than expected.
The global mining boom in the wake of the financial crisis helped power Caterpillar shares a few years ago, but the subsequent commodity crash thanks to a slowing China has made those mining sales dry up. And heavy infrastructure equipment just hasn’t been in demand as much, thanks to anemic spending on roadways, airports and other projects in Europe and America.
Until commodity prices firm up and until governments begin spending big on infrastructure again, don’t expect much out of CAT.
Warren Buffett and Berkshire Hathaway (BRK.B) have been long-time fans of Coca-Cola (KO), with the investment company holding roughly 11% of shares. It’s easy to see why, since Coke has a powerful brand and an enormous reach, along with a nice 2.8% dividend yield.
However, the unfortunate truth is that Coke’s flagship soft drink faces big challenges ahead. For starters, its brand is tied to a product that has reached critical mass — with Coke already penetrating markets at a heavy rate, and with broad consumer trends moving away from soft drinks to healthier options in an age of obesity and diabetes.
Coke investors seemed to buy excuses about wet weather sapping sales in the spring, but another quarterly report full of disappointment rattled the stock this summer and sparked declines. And after the company met earnings expectations in October, some may be content to write off the underperformance this year as something that’s in the rear-view mirror.
However, details showed that net revenue was down again in the third quarter — a decline of 3%. Furthermore, North American sales grew just 2% — and largely thanks to non-soda offerings — with core products like Coca-Cola and Sprite remaining weak. Sales fell by volume in Europe, and barely remained flat in Latin America.
Pressure in Western markets isn’t good, but weakness in a growth area like Latin America is a serious concern.
A strong dollar could continue to depress international revenue thanks to unfavorable exchange rates, so expect troubled months ahead for Coca-Cola stock.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via@JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.