There are a lot of reasons for investors to be nervous right now. There’s turmoil in the Middle East, terror attacks in Europe, fears of a slowdown in China, a lack of clarity on Fed rates and uncertainty about American consumer spending as we approach the holidays … just to name a few.
It’s hard to be a bull in a market like that.
A lot can go wrong in the next several weeks, and a lot will likely go wrong in 2016 judging by the rather volatile 2015 we’ve suffered through. Thus, many investors are looking to make moves right now to adjust their asset allocations as we approach the close of the year, collecting tax-efficient gains and harvesting losses.
If you’re one of these traders with a taxable account that requires a certain amount of strategic buying and selling, then you should take a close look at this list of big-name stocks are companies you should abandon and leave by the wayside in 2016.
And equally importantly, if you’re looking for potential bargains to buy with new money, steer clear of these dogs with fleas.
Here are seven big-name stocks that need to be dumped as we turn the calendar on 2015 and prepare for a new year.
Stocks to Sell: Walmart (WMT)
Wal-Mart Stores Inc. (WMT) posted earnings that encouraged some on Wall Street lately. However, with shares still down about 30% this year, it’s premature to say the company is in recovery mode.
After all, Warren Buffett just sold about 7% of his stake in WMT stock based on the latest Berkshire Hathaway filings. And furthermore, while Walmart topped forecasts, this is coming after the company changed guidance twice already this year, cutting forecasts in October after a previous forecast reduction in August alongside poor Q2 numbers.
Who does Walmart think it is, telling us it is “raising” its full-year forecast to $4.50 to $4.65 per share from the latest forecasts of $4.40 to $4.70? Back in January, a mere nine months ago, it had forecast $4.70 to $5.05 in earnings. How is this an increase in guidance less than a year after having a higher target?
Beyond stagnant revenue and pressure on profits, Walmart is stuck in a technical downtrend after literally having its worst day ever in October with a single-day decline of about 10%.
Throw in a huge cash burn as WMT wastes $20 billion on buybacks and another $35 billion across three years on capital expenditures … and, well, you have to wonder what investors have to look forward to in the near term.
Stocks to Sell: Alibaba (BABA)
Alibaba Group Holding (BABA) hit the NYSE in 2014 with the largest global IPO ever at the time, and was heralded as the best way to play an emerging consumer class in China.
However, the bloom quickly came off the rose and BABA stock fell below its initial offer price as investors learned of serious difficulties in the Chinese economy. BABA continued to fall on fears that a global slowdown would sap the growth that many had been promised from the e-commerce giant.
More recently, there have been allegations of counterfeiting and other shady tactics from the Chinese megacap. For instance, a recent report estimated the total value of counterfeit goods sold on Alibaba’s sites at $45 billion last quarter alone. Not only does that call into question the staying power of the sales growth BABA has seen, that kind of fraud also means that it’s not very likely this company will be welcomed with open arms by Western investors, merchants or consumers.
And most troubling of all is that when Alibaba Group went public, it did so with a very convoluted corporate governance structure that basically renders common shareholders powerless. Thanks to the hype machine during the run-up to IPO, many folks may not have caught those details. But the recent underperformance of the stock, with BABA down more than 20% YTD, coupled with counterfeiting fears, should remind investors just what kind of company they are looking at with Alibaba.
Stocks to Sell: Twitter (TWTR)
Embattled social media stock Twitter Inc. (TWTR) got a brief respite from its continued troubles recently, as founder Jack Dorsey returned to the helm as CEO of the company … at least, part of him did. After all, Dorsey is still at the helm of mobile payments company Square Inc. right now, too, and that company has just launched a high-stakes IPO.
But after the pop in the beginning of October, Twitter once again proved how bad it really was with another poor earnings report. Last quarter, TWTR stock saw less than 3% user growth sequentially last quarter — a measly 7 million new users — and just 15% user growth year-over-year.
Though the total user base has flatlined, the social media company’s reach is still disappointing at just 316 million last quarter according to Twitter earnings.
Granted, total revenue was $502 million on the quarter, an increase of 61% year-over-year from $312 million in 2014. However, a surge of 68% in the cost of revenue for Twitter — from $100 million to $168 million — hints that growth is not easy to come by and margins remain very thin.
The trend is clearly downhill for TWTR, and nothing from the last several weeks has changed that narrative.
Stocks to Sell: Chipotle (CMG)
Chipotle Mexican Grill Inc. (CMG) has seen a waterfall drop in the last month or so, with shares off more than 20% thanks to disappointing earnings. And with shares of CMG stock firmly beneath the 50- and 200-day moving averages, that kind of technical downtrend is hard to reverse for a momentum name like this.
On the surface, Chipotle’s Q3 report looked good. Same-store sales were up 2.6%, and revenue grew 12.2% overall. However, those numbers are down dramatically from the recent past. Consider that in the third quarter of 2014, same-store sales were up a mind-blowing 19.8% on revenue growth of 31.1%. CMG stock is simply failing to live up to expectations it had created over the past few years.
An equally important story besides slowing revenue are sinking margins. And with prices at the fast casual restaurant chain already pushing double-digits for a burrito and a drink, you have to wonder how CMG stock is going to correct this trend.
Throw in a possible E. coli outbreak and general market uncertainty, and it’s hard to think that new money should be chasing CMG stock now after this fall from grace.
Stocks to Sell: Macy’s (M)
The fall of Macy’s (M) in the second half of the year has taken some investors by surprise, as shares have cratered about 40% since August despite a strong history of outperformance in prior years.
However, a closer look at the retailer reveals a good reason for the declines.
Most recently, Macy’s saw an 46% drop in year-over-year profit and revenue that declined 5% in Q3 vs. 2014. This comes after weakness in Q2 that included a 26% drop in profits and a roughly 3% drop in sales, and confirmed to many investors their initial fears that the party is over in M stock.
Especially considering the trouble elsewhere in the retail space, with stores including Nordstrom (JWN) and Gap Stores (GPS) posting disturbing numbers, there is simply no reason to be holding Macy’s into the all-important holiday shopping season.
And come 2016, why would you want to mess with a stock that has a chart as ugly as Macy’s? When the trend is this sharply down, something serious has to happen to reverse things … and given the recent spate of negative data, the only thing investors should expect is further confirmation of declines — not a reversal in the New Year.
Stocks to Sell: GoPro (GPRO)
GoPro Inc (GPRO) has been on a high-adrenaline ride since its IPO a little over a year ago. GoPro went public at $24, raced up 250% … but is now right back to its initial offer price.
And based on the charts, it will get worse before it gets better. GPRO has lost more than 30% in the last month as sentiment deteriorated around the company’s abysmal third-quarter earnings report. The extreme sports camera maker missed expectations by a long shot, with earnings per share of just 25 cents vs. forecasts of 29 cents, and revenue of $400 million vs. forecast of $434 million.
Wall Street analysts certainly see the writing on the wall. Morgan stanley reduced its price target on GoPro stock from $62 to $35 after earnings, and more recently Piper Jaffray cut its target by 54% to just $25 from $54 previously.
The line of Hero cameras put out by this consumer tech company are indeed good products. But it’s not like GPRO has a monopoly.
Given the negative sentiment and the very clear downtrend, banking on a rebound in GoPro is a dangerous proposition.
Stocks to Sell: Pandora (P)
Pandora (P) may be a leader in streaming music from a consumer perspective, but from an investing perspective, there should be some serious red flags when you look at this stock.
For starters, Pandora’s stock price fell a massive 35% in just one trading day about a month ago thanks to disappointing results and fierce competition. While revenue was indeed up 30% year-over-year, the company reported a loss and boasted just 4 million listeners compared with 20 million on privately-held Spotify and a reported 8 million users or so for emerging player Apple (AAPL) after it launched a trial version of its Apple Music service a few months ago.
The kicker was that Pandora’s Q4 guidance stunk as big concerns remain about the cost of content and rising artist royalties.
When you’re losing money, losing share to the competition and forecasting revenue disappointments … there just isn’t much to like. Investors should steer clear of P stock right now and into 2016 as a result.
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 editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
