Investment ideas aren’t always about which stocks to buy. They are also about which stocks to sell and why. Normally, people already know when it’s time to cut losses, but sometimes investors just don’t want to take the loss and move on.
The Zacks Rank can help investors determine if it’s time to cut a stock loose or if you should hold on and wait for a turnaround. This is very difficult questions to answer, but take a look at a few stocks you should be selling and a couple of beaten down stocks that you should hold onto.
First The Easy Part
I ran a screen for stocks that were down 10% or more year to date, had a Zacks Rank #4 (Sell) or #5 (Strong Sell). The list was around 200 names long, so I added in the idea of very recent estimate reductions. Think of that as the Zacks Rank getting a little stronger over the last few weeks.
Of the 21 names that I had to select from, I saw a few #5’s that stood out. One of them is a former holding of Home Run Investor, a buy and hold service that I manage. Titan Machinery (TITN) has a good 2012, but not so much for 2013. This stock is an easy decision, the potential turnaround here requires a lot.
Estimates for TITN have fallen all year. For 2014, estimates were once as high as $2.63, but they have tumbled more than 76% to the current level of 62 cents per share. The same could be said of estimates for the following year as well.
The stock is down 35% year to day and estimates have dropped more than 10% in the last four weeks, so it is likely that investors will not want to keep this machinery stock in their portfolio until estimates turn around.
Joy Global (JOY) isn’t a #5, but rather a #4 with potentially further to fall. It is closely related to TITN, but is only down 14% year to date. Estimates are falling dramatically for JOY too. Analysts are expecting $3.27, but that is down more than 51% from the start of the year. 2015 is seeing an even greater decline.
More recently, analysts have moved estimates for JOY lower by about 10%, so this one is also a stock that investors should wait for a turnaround from estimates before they think of getting back in.
Not Time To Sell
One stock that hasn’t had such a good year is Cliffs Natural Resources (CLF) as the stock is down some 37% year to date. That sort of pain is hard for investors to swallow, but estimates have already turned around and are heading back up. That means, that this stock, while likely to see some tax loss selling in the next week or so, should actually be held.
CLF is a Zacks Rank #1 (Strong Buy) after estimates for 2014 have trended higher over the last three months, moving from $2.70 in September to $3.00 as of late November. That move came despite the October 24 earnings report that saw the company miss the Zacks Consensus Estimate by 9.8%.
Earlier in the year, the company badly missed the December 2012 quarter when they reported on the 12th of February. The bottom line came in 25% below expectations and the stock sold off by nearly 20% in the session following the earnings report.
Knock On Wood
The other name that I wanted to highlight here is St. Joe Company (JOE) which is down 22% this year after the timber market looked like it would heat up this summer but was cut down to size later in the year. JOE is a Zacks Rank #1 (Strong Buy) and has seen estimates for 2014 recently turnaround.
After opening the year with two misses of the Zacks Consensus Estimate, JOE has beaten in each of the last two reports. Those beats haven’t really impacted estimates that much, but after slipping from 2 cents per share mid-year to a loss of 1 cent per share in September things were not looking so good.
More recently, the estimates have risen from that loss of a penny to a gain of 4 cents per share – a very dramatic turnaround. That tells me that this stock, which is primed for tax loss selling is one that should not be sold as estimates are heading in the right direction.
At the end of the year, investors and money managers alike will look at their holdings and make some tough decisions. Many holdings will likely be showing gains, but there will be a number of them that will show losses. Knowing which stocks should be cut loose and which ones still have a good potential to get the capital back can make a big difference.
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Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor
service, a Buy and Hold service where he recommends the stocks in the portfolio. Brian is also the editor of Breakout GrowthTrader a trading service that focuses on small cap stocks and also
carries a risk limiting strategy.
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