Recent market turbulence has served up a wide range of stocks to buy on valuation, but it’s also exposed a number of stocks exhibiting technical weakness. Add a history of poor seasonality, and it’s clear that, on a tactical basis, these stocks are deserving of a mass exodus from investors’ portfolios.
That goes double for this time of year, as we’re entering the historically worst month for stocks.
Since 1928, the S&P 500 has suffered an average decline of 1% in September, according to Yardeni Research. Sure, that’s just an average, but the way markets have been acting over the past couple of weeks, it probably a good idea to respect the long-term performance.
A traditionally poor outlook for stocks in September makes it imperative for tactical investors to find stocks to sell, lest they act as a drag on performance at a time when the tide is going out. Stocks flashing sell signals on a technical basis and a tendency to drop in the coming months are obvious candidates for any list of sell-worthy stocks.
After screening the market for stocks with technical weakness and a history of September underperformance, we came up with a short list of stocks to exit. In every case, these shares have recently carved out the sell signal of a death cross. Not coincidentally, fundamentals are working against these names too.
Given all that, tactical investors would be wise to dump these stocks as we head into a new month of trading.
Stocks to Sell: Archer Daniels Midland (ADM)
ADM plunged through its 50- and 200-day moving averages at the start of the summer and struggled ever since. The stock held up well after it described a recent death cross, but then the market-wide selloff put it close to a 52-week low.
ADM stock will benefit in any general market recovery, but that doesn’t mean it’s a good bet for September. Archer Daniels Midland has a way to go before it can even test resistance at it 50-day MA. And over the last decade, ADM has lost an average of 1.2% in September, according to Thomson Reuters Stock Reports.
Stocks to Sell: Berry Plastics (BERY)
The maker of plastic packaging missed Wall Street’s quarterly profit estimate — and that makes September look like it will stick to the script of poor seasonality. BERY has lost an average of 4.3% in September over the past 10 years.
One technical bright spot is that the 200-day MA remains in an uptrend, which is a sign of a healthy stock. That said, the indicator is now flattening out. If September plays out like it usually does, a declining 200-day MA will give chart watchers another reason to sell.
Stocks to Sell: Baker Hughes (BHI)
Click to Enlarge Baker Hughes (BHI) stock sure isn’t acting like its being acquired by Halliburton (HAL). It was down about 20% even before market turmoil swamped stocks in general. Shares are now off about 30% for the year-to-date.
Some of the market’s unease is attributable to the complex process of divestitures needed for regulatory approval. More importantly, companies that provides services to the oil sector aren’t exactly awash with positive market sentiment.
Those headwinds put BHI stock through a death cross in mid-August. That, in turn, has it a long way from its 50-day MA. A history of losing 1% in September doesn’t augur well for BHI stock either.
Stocks to Sell: Hilton Worldwide Holdings (HLT)
Click to Enlarge Hilton Worldwide Holdings (HLT) stock has never much liked September, and poor seasonality alone should have tactical investors looking to sell this name. After all, HLT has an average of 2.7% in the month over the last decade.
Weak technicals only affirm a “sell” call on the hotel operator. HLT has been trapped below its 50-day MA since the spring, which was frustrating enough. Then a rocky start to August trading caused HLT to make a death cross mid-month.
Quarterly earnings beat Street estimates, and the market initially applauded the results, but they couldn’t arrest the large trend of declines. Rising expenses and a soft international market remain serious concerns on the fundamental side of things, furthering pressuring short-term performance.
Stocks to Sell: La Quinta Holdings (LQ)
Click to Enlarge Hilton isn’t the only hotel operator suffering from technical weakness, poor seasonality and fundamental issues. La Quinta Holdings (LQ) has been in a downtrend all summer Indeed, it was in free fall even before the multi-day market crash.
LQ tested its 50-day MA in mid July and failed. The ensuing plunge set off a death cross earlier this month, at which point the selling only accelerated. Furthermore, LQ is hitting 52-week lows, which adds to downside momentum.
And all this comes against a backdrop of bad seasonality. LQ traditionally underperforms the market by a wide margin in September. Over the last 10 years, the stock put up an average decline of 3.8%.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.