The market continues to push higher, but that doesn’t mean investors can rely on every stock to move higher, too.
The fact is a number of stocks are seriously lagging the market — and many will continue to fall behind in the months ahead.
Some of these stocks have made strategic missteps that are holding back profits and sales. Others are simply in an unfortunate place right now as trends in the broader economy hold them back. And then there are stocks that aren’t necessarily bad, but simply overvalued when compared with the alternatives.
Any way you slice it, though, these stocks could take a serious bite out of your portfolio and need to be sold ASAP.
Here’s why I am bearish on those particular stocks right now:
Stocks to Sell – Amazon (AMZN)
Amazon (AMZN) has had a rough go of things in 2014, as evidenced by the stock’s nearly 20% losses so far this year.
But amazingly, even after the selloff, AMZN stock is still sporting a sky-high valuation; the forward price-to-earnings ratio is a staggering 160 with a trailing P/E of almost 500!
Now, plenty of tech stocks can run at breakeven or a small loss as they gain market share and not face the wrath of Wall Street. Unfortunately, AMZN investors have long banked on Amazon stock gobbling up market share in key areas while the company forgoes profits … and they’ve run out of patience.
This shift in sentiment is way too much for Amazon to overcome.
Besides, Amazon isn’t doing anything to change its behavior or investor perceptions. Between a race to the bottom in pricing across Amazon Web Services and the company digging a deeper hole in hardware with the launch of its Fire TV and new smartphone, it’s safe to say that margins aren’t going to recover anytime soon. If anything, things could get even worse.
The direction in AMZN stock is clearly down. Investors should get out of the way.
Stocks to Sell – Walmart (WMT)
Walmart (WMT) is the biggest retailer on the planet. But size isn’t everything, and a painful lack of growth lately means that investors are going to be disappointed for some time if they hang on to Walmart stock.
Walmart has admitted how bad its performance has been with a house-cleaning, including putting a new CEO of U.S. operations. However, Greg Foran is hardly new blood considering his previous role in charge of Walmart Asia. Investors should be concerned that this move isn’t ambitious enough to change the trajectory of WMT with its domestic sales struggles.
Specifically, Walmart had struggled to grow same-store sales since the Great Recession. And although sales stabilized briefly a few years ago, WMT continues to suffer an ugly streak of same-store sales declines.
Just about the only think WMT stock investors have going for them is the decent 2.6% dividend, but given the 6% decline in Walmart stock year-to-date and the miserable 1% increase in WMT since August 2012 … that dividend isn’t enough to make this retail giant worth owning right now.
Stocks to Sell – McDonald’s (MCD)
McDonald’s (MCD) stock has been close to dead money for the last couple of years, with shares up a pathetic 10% since August 2011 while the S&P 500 has tacked on over 60% in the same period.
And unfortunately, the pressure on MCD stock isn’t going away.
Weak U.S. sales figures have been a fixture at the fast food giant in recent earnings thanks to the confluence of a number of factors — most notably, tough competition from healthier and more popular restaurants like fast-growing Chipotle (CMG).
Admittedly, the 3.5% dividend yield is nice. However, that dividend is nicest for investors who bought a decade ago before a roughly 490% increase in dividends across the past 10 years. Lately, the fast food giant has been providing meager increases of just about 5% annually in distributions — indicating that the brisk dividend growth of the past is way behind McDonald’s now that earnings are under pressure.
Obviously, MCD isn’t going to disappear anytime soon. But don’t confuse stability with a shot at outperformance. You’re better off moving your money into a different stock than this dud.
Stocks to Sell – Whole Foods (WFM)
Whole Foods (WFM) still is up considerably from levels a few years ago, but its long-term outperformance should not be confused with a bullish outlook for the future.
Consider recent Whole Foods earnings, which were quickly followed by a sharp drop in the organic grocer’s share price. Given previous trouble, that brings the total loss in WFM stock to 33% YTD in 2014.
Slowing sales and increased competition are trends that will continue to put pressure on sales and earnings going forward. In fact, Whole Foods lowered its sales and profit outlook for fiscal 2014 in its most recent earnings report as an admission of the tough road that lies ahead. This, after Whole Foods cut its outlook previously in February,
It’s undeniable that organic foods have a tailwind as a broad part of the consumer staples market. But Whole Foods is overvalued and competition is fierce, which will continue to hold WFM stock back in the near-term.
Stocks to Sell – Sprint (S)
Sprint (S) is a popular stock for day traders thanks to its low share price. However, shares of Sprint stock are cheap for a reason — and after an ugly 46% decline YTD in 2014, it’s time to unload this dog and move on if you haven’t already.
There was hope for Sprint as the No. 3 wireless carrier behind AT&T (T) and Verizon (VZ) after it made a bid to acquire T-Mobile (TMUS). But now that the plan has been squashed, it’s about to get very painful for Sprint because it lacks the scale of VZ and AT&, and T-Mobile continues to grow aggressively on its low-cost approach to the market.
Sprint is left with its own business, and for current and prospective subscribers, this is not a positive given the aging network infrastructure and tenuous capital structure of the business.
According to reports, in the first six months of 2014, Sprint lost approximately 633,000 subscribers. And given that Sprint is struggling mightily to turn a profit and is saddled with $32.5 billion in debt as of June 2014 on a current market cap of just $23 billion. Worse, that debt rose from $24.3 billion in 2012 thanks to the acquisition of Clearwire and other big-spending efforts that haven’t really paid off.
Sprint does have more than $6 billion in cash in the bank, but cash flow was in the red last year, so it’s difficult to tell how much financial flexibility Sprint has to invest in growth.
Expect Sprint to continue to fall behind its peers in the wireless market, and steer clear of this telecom now that it has lost out in its T-Mobile bid.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.