July is historically the best month for the market, but that doesn’t mean your portfolio is completely bulletproof.
Since 1928, the S&P 500 has enjoyed an average price gain of 1.5%, according to Yardeni Research. That sounds pretty great, but it doesn’t mean investors can just stand pat.
When faced with such a high bar, tactical and technically minded investors need to identify the losers, as crummy picks will drag on returns and hold back performance. Hey, it’s hard enough to beat the market as it is, so you’re better off reviewing your portfolio for stocks to sell and ditch the dead weight now.
Stocks exhibiting technical weakness are usually stocks to sell, and there’s no shortage of them these days — even in the S&P 500. From an airline to an asset manager, we found stocks with rickety fundamentals, price momentum to the downside and a history of lackluster or negative returns.
After screening the S&P 500 for stocks to sell, we found a number of equities waving technical red flags — including death crosses, which are a classic sell indicator.
With that in mind, here are five stocks to sell for July:
Stocks to Sell: American Airlines (AAL)
Click to Enlarge Air travel peaks in the summer, but that doesn’t mean airline stocks do.
American Airlines (AAL) has history of terrible price performance at this time of year. On average, AAL falls 9.6% in July, 1.6% in August and 8.7% in September, according to data from Thomson Reuters Stock Reports.
This year promises more of the same, and we’re getting off to an early start.
Airline stocks in general are having a bad time, as the market frets over pricing, demand and capacity. AAL certainly has not been immune to those issues.
Worse yet, reports out Wednesday said that the government is investigating whether airlines were colluding to keep airfares high, causing Wall Street to rush to the exits across most U.S. airline stocks. That includes American Airlines, which was off about 4% as of this writing.
AAL is now 28% for the year to date, leaving it more than 13% below its 50-day moving average. Indeed, it hasn’t been above its 50-day since April and fell through the 200-day MA in May. A recent death cross adds to downside pressure.
Stocks to Sell: Best Buy (BBY)
Besides, BBY has been in a downtrend for more than three months — and that’s despite first-quarter earnings that topped Wall Street estimates.
Fundamentally speaking, Best Buy is still alive, but the company still is fighting the uphill battle of brick-and-mortar versus online.
Meanwhile, technically, downside momentum has left BBY stock much closer to its 52-week low than 52-week high. It’s also now well under its 50- and 200-day moving averages. It’s nowhere close to being able to test resistance.
It also doesn’t help that Best Buy has a long history of losing ground in July. Over the last decade, BBY stock has lost an average of almost 2% this month.
With weak seasonality and poor technicals, don’t look for a rebound in BBY stock anytime soon.
Stocks to Sell: Coach (COH)
Click to Enlarge Luxury handbag retailer Coach (COH) got into trouble about three years ago by opening too many stores, devaluing the brand with outlet stores and promotions, and failing to keep with the competition.
COH has lost about half its value since then, and it still hasn’t found a bottom.
After hitting a death cross at the end of last month, Coach isn’t going to regain its footing in July. Even after adding in the good times in the last 10 years, COH historically loses nearly 3% this month on average.
Indeed, the current downside momentum is bad enough that COH is more than 20% below its 52-week high, but only 6% above its 52-week low. With technical red flags and poor seasonality, COH has a good chance of testing — and maybe even busting — that 52-week low soon.
Stocks to Sell: Legg Mason (LM)
Even worse, the stock recently hit into an ominous double play.
Legg Mason’s shares collapsed in mid-June, after first hitting a death cross and then setting a fresh 52-week low. True, LM stock bounced off that new bottom, but that hardly means it has any price momentum. Shares found resistance at their 50-day moving average twice before crumbling last month, and remains much closer to its low than its high.
The technical red flags raise the odds that LM will suffer once again through at least a couple of months of poor seasonality. Shares typically fall 4% on average in July and 0.4% the following month.
Stocks to Sell: Raytheon (RTN)
Click to Enlarge Raytheon (RTN) actually has a history of putting up a slight gain in July, but it doesn’t look like it will do so this month. RTN has been in a steep downtrend since May when a legal challenge from competitors threw a $1 billion radar-contract with the U.S. Air Force into doubt.
The market hates uncertainty, and technicians hate death crosses. Between the two, RTN is down 11% for the year-to-date after notching a new 52-week low on the last day of June. Needless to say, the stock is much closer to its low than its high, and is starting to look sick.
The recent action has caused the 200-day moving average to roll over. With shares 8% and 9% below their 50- and 200-day averages, respectively, RTN won’t be testing resistance for some time.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.