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6 Stocks to Sell in October

By Sam Collins, InvestorPlace Chief Technical Analyst

Congress missed a midnight deadline to agree on a spending bill, resulting in a partial government shutdown. After the shutdown is resolved, the focus will be on the debt ceiling. In such a volatile political climate, it is amazing how well stocks have reacted to the negative pressures.

Perhaps investors are becoming more aware of history, as the 17 government shutdowns since 1970 were all settled in several weeks, and the market averaged a gain of 0.7% one month later, according to SentimenTrader. Or perhaps the public is just out of the market and the professionals know the score.

Whatever the reason for the market’s refusal to collapse, there are some stocks that should be sold merely because they are poor investments. For example, the yields on royalty trusts are doomed to dwindle. And there are companies, like those in the coal industry, that are bucking political headwinds that cannot be overcome.

Here is our list of stocks to sell in October: 

Stock to Sell #1 – Alexandria Real Estate Equities (ARE)

Alexandria Real Estate Equities (ARE) is a real estate investment trust (REIT) that focuses on office and laboratory space, which are dependent upon a strong economy and government spending — two negatives. Additionally, ARE has over 2.1 million square feet of new space under construction or development at a cost of $1.4 billion — an enormous risk. If the economy stumbles, this REIT will probably have to cut its $2.72 annual dividend (4.2% yield).

Technically, ARE is in a bear market. It triggered a death cross (long-term sell signal) in June, fell through its 200-day moving average and failed to regain it during a rally in July, and issued a sell signal from our proprietary internal indicator, the Collins-Bollinger Reversal (CBR), in September. Sell ARE at the market.

ARE Chart
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Chart Key 

Stock to Sell #2 – Arch Coal (ACI)

Coal is under attack with President Obama pledging to put the coal companies out of business. Natural gas is the fuel of choice for America’s largest utilities, and recent government edicts against coal companies make coal less attractive.

Arch Coal (ACI) ended Q2 with a loss, and so the company’s $0.12 annual dividend (2.8% yield) is in jeopardy.

Technically, a rally from the $3.47 low to $5.25 failed as the stock pierced its 50-day moving average on Sept. 27. Sell ACI at the market.

ACI Chart
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Chart Key 

Stock to Sell #3 – Peabody Energy (BTU)

Like ACI, Peabody Energy (BTU) is under attack by the government as a polluter. Investors should expect its $0.34 annual dividend (1.9% yield) to be cut.

On Sept. 27, the stock declined through its 50-day moving average on heavy volume from a recovery channel. In September, MACD issued a sell signal, even though the stock was already in an extended bear market. Sell BTU at the market.

BTU Chart
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Chart Key 

Stock to Sell #4 – RadioShack (RSH)

Electronics retailer RadioShack (RSH), which was once a household name, has been losing money for several years. It eliminated its dividend in July 2012, and analysts look for a second year of huge losses.

The stock is trading in a bearish “horn” formation. MACD issued a sell signal in mid-September. Sell RSH at the market.

RSH Chart
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Chart Key 

Stock to Sell #5 – Sabine Royalty Trust (SBR)

Unlike the more familiar master-limited partnerships (MLPs), which often own or operate energy, mining and other assets, the typical royalty trust holds only the right to receive income from a fixed number of properties. And unlike their Canadian counterparts, U.S. royalty trusts don’t have the ability to replace assets, and so they must, over time, deplete to no value and close. They have the highest payout when oil and gas prices are highest, but in a period of falling prices, which is now happening, their dividends fall too.

Sabine Royalty Trust (SBR) holds royalty and mineral interests in various oil and gas properties. Over time, its dividend distributions of $3.73 annually (7.3% yield) will decline.

Since March, the stock has been trading in a descending triangle with support at $48.50 to $51. MACD issued a sell signal on Sept. 27, and our internal indicator flashed a sell signal on the same day. Sell SBR at the market.

SBR Chart
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Chart Key 

Stock to Sell #6 – San Juan Basin Royalty Trust (SJT)

Like SBR, San Juan Basin Royalty Trust (SJT) is holding gas and oil properties with a diminishing life expectancy. Thus, its monthly income must decline until the trust liquidates. It currently pays out $1.14 a year (7.1% yield), but income and cash flow have been declining since 2008.

Technically, the stock broke down from a bull channel in late September, flashed sell signals from our CBR indicator and MACD, and is currently putting pressure on its 200-day moving average. Sell SJT at the market.

SJT Chart
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Chart Key

Article printed from InvestorPlace Media,

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