The stock market threw investors for a loop in the last few weeks, with the major indices dipping sharply across the end of September and beginning of October, but recently fighting back. At one point it looked like we could finish the year flat or in the red … but now, stocks are back up about 7% since Jan. 1.
Tech stocks in particular have been a pocket of strength; while the S&P 500 index is up about 7% on the year, the iShares U.S. Technology ETF (IYW) is up almost 13% and the Powershares QQQ Trust (QQQ) that’s pegged to the Nasdaq-100 is up by a hair more.
Personally, I am very bullish on the market in general and confident stocks will keep marching higher through the end of the year.
However, that doesn’t mean every stock is a strong buy.
After the market has fought back recently and as investors digest third-quarter earnings, it might be the right time consider trimming back on some positions and moving money to the next opportunity. That’s particularly true for some overbought tech stocks right now.
If you own any of the following five big-name tech stocks, consider moving your money before the next leg down.
Tech Stocks to Sell – BlackBerry
BlackBerry (BBRY) stock has had a decent run in 2014, with the stock up an impressive 43% year-to-date. But investors shouldn’t see that as a sign that BlackBerry is back.
Part of the reason for recent optimism is a conspicuously anonymous report that hinted China’s Lenovo Group (LNVGY) could be considering a purchase of BlackBerry. However, as I mentioned a few days back, a BlackBerry buyout is simply not going to happen.
Consider that back in 2013, Lenovo hinted at interest in a BlackBerry buyout. But CEO John Chen admitted regulatory concerns from Canada’s government would prevent a Chinese buyer — whether that be Lenovo or any other company.
It’s worth noting that BlackBerry is in the midst of a second act after its crash to a single-digit share price at the end of 2013, and that there admittedly has been improvement for the company. There have even been hints of hardware success for the recently launched BlackBerry Passport and the soon-to-debut BlackBerry Classic.
But revenue still is sliding, and there simply isn’t a lot of growth here for the company.
Sure, BlackBerry may have stabilized and could have been a bit oversold in 2013. But don’t confuse that rebound with a sign that the company is guaranteed future success.
If you own BBRY stock, take the money and run.
Tech Stocks to Sell – Pandora
Pandora (P) has the biggest audience of any Internet radio service, with more than 76 million people tuning in as of Q3. According to Pandora, that accounts for more than 8% of the entire radio listening market.
However, that great share of listeners isn’t growing very much … and that has investors very worried.
In its most recent earnings report, Pandora showed just 5.2% growth in active listeners, falling short of forecasts and indicating that the service could be flatlining when it comes to audience. Sure, listener hours were up briskly … but that metric fell short of forecasts, too.
As with so many tech stocks, Pandora was able to post impressive growth in its early days and is starting to see that growth slow as it matures. But the big problem is that despite flatlining user metrics, the company isn’t yet profitable and is forecast to finish fiscal 2014 operating at a loss.
That’s not a good sign, because if Pandora can’t grow its listener based and doesn’t have an efficient way to monetize the audience it has … it may never post significant profits.
Worse, the long-term outlook isn’t good. Recently, an organization called SoundExchange pitched a higher royalty rate for streaming radio services like Pandora, effective in 2016. That will weigh on margins and these nonexistent profits even more. Also, we haven’t even mentioned the idea of competition via Spotify or Apple (AAPL) with its iTunes Radio streaming service.
Pandora One is premium service from the company that charges $4.99 per month for unlimited, ad-free listening … but that may not be enough to support Pandora stock.
Shares have already started to crumble, down about 50% from their spring highs and off about 20% in the last few weeks alone thanks to this ugly Q3 report.
Expect the pain to continue for Pandora.
Tech Stocks to Sell – Google
Google (GOOG) is a great long-term success story for investors over the last few years. However, after the recent Q3 earnings report, it may be time to trim back your position in this tech stock and prepare for rough going in 2015.
Google earnings disappointed on multiple fronts, including:
- Revenue: $16.52 billion vs. a target of $16.57 billion
- Earnings: $6.35 per share vs. a target of $6.53
- Paid Clicks: Up 17% vs. a target of 22% growth
- Cost Per Click: Down 2%
The top and bottom lines are self-explanatory; Google simply missed forecasts. But the details in “paid clicks” and “cost per click” are noteworthy because, in a nutshell, the former represents the total volume of Google’s ad business and the latter represents the rate Google gets paid per advertisement.
So not only is Google’s stock not performing up to Wall Street expectations on basic financials, but the details tell a story of deceleration in its ad business. This continues a narrative we’ve seen emerging at Google for some time, beginning about a year ago.
Google has done nothing in the short term to alleviate concerns that it is fighting upstream, and has relied simply on serving a higher volume of ads at lower margins. But as these results show, you can only get by with that approach for so long.
Remember, Google’s advertising business accounts for more than 90% of its total revenue, so items like Google Glass and Google Fiber, while fun to speculate about in tech blogs, don’t mean much to the bottom line in 2014 or 2015.
Without strong ad numbers, it’s unlikely GOOG stock can stay strong either. I’d consider this stock a sell right now after poor earnings.
Tech Stocks to Sell – Twitter
The stunning comeback of Twitter (TWTR) in mid-2014 included a roughly 50% gain from a low of around $30 a share in May to a high of over $55 a share in early October.
Unfortunately, that comeback has crumbled as Twitter has tanked after nasty earnings.
Twitter earnings missed the mark so badly that the company is now actually in the red since its late 2013 IPO. Revenue almost doubled, sure, with a focus as always on mobile ad sales. However, the 1 cent per share in adjusted profits barely met expectations, and the growth wasn’t quite as brisk as the bulls had expected on the top-line.
Adding insult to injury was guidance that was merely in-line – proving ho-hum performance may be here to stay.
As with Pandora, Twitter has failed to live up to the promise of profits … and investors are getting tired of waiting. Even more interesting is that TWTR does like to report a paper profit based on unconventional accounting techniques — meaning that it thinks its profitable even if generally accepted accounting practices show it running at a loss.
You always have to be skeptical of that kind of accounting.
User growth admittedly was up 23%, but the raw number of users was just 284 million — missing forecasts — and many investors worried that the one-time bump from World Cup engagement has faded, and that TWTR is reverting to a slower pace of growth again.
This is a very risky stock, with a forward P/E ratio of about 110 and high expectations that clearly aren’t getting met. If you’re in Twitter and made a bargain buy a few months ago, take the money and run … because it’s unlikely TWTR will revisit 2014 highs anytime soon.
Tech Stocks to Sell – Amazon
Amazon (AMZN) was already having a bad year before its Q3 earnings report about a week ago. AMZN has a serious challenge with profitability and with investor sentiment, and it’s “show me the money” time for Amazon.com.
Unfortunately, the money once again was nonexistent when investors looked into the latest earnings report.
Amazon didn’t just post a loss in its Q3 report, but posted its biggest profit shortfall since 2003 as costs continued to rise, margins got thinner and all those sales didn’t mean a penny of profits.
So far in 2014, Amazon stock has lost 25% vs. a roughly 7% gain for the S&P 500 … and investors can expect those declines to continue based on recent ill-advised projects that will continue to hold back the bottom line.
I’m talking about the much-hyped Fire Phone, the Fire TV and most recently the Fire TV Stick. These gadgets are sure to see low margins — and based on reports that the Amazon Fire Phone has moved a mere 35,000 units and continued cost cuts for the Fire TV, these items might not even give a substantive revenue boost, either.
What is Amazon thinking, monkeying around with low-margin hardware when it can’t even turn a significant profit on its dominant e-commerce business?
When you take the current bearishness about Amazon and layer on these recent misguided moves, it’s clear that sentiment is going to work against AMZN for some time. And given the lack of profits after the most recent earnings report, there seems no compelling reason to risk an investment in Amazon stock right now.
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.