These days, looking for stocks to kick out of your portfolio seems a lot trendier — and a lot more important — than looking for stocks to buy.
I can certainly understand this, considering stocks started the year with a crushing blow from a giant, oil-coated bear paw. That strike was followed up by the angst-filled growls from China’s equity bear dens.
Together, concerns over plunging crude prices and slowing global growth teamed up to take the major averages down more than 8% through the January low. And while stocks mounted a nice comeback in the final week of the month, the bearish headwinds of persistently problematic oil prices and fears of a global recession encroaching on the U.S. economy remain at the forefront of investors’ minds.
So, what do you do with certain stocks right now that are most likely to remain under selling pressure now that the wider market is teetering?
The simple answer is you sell them, raise cash and pick your spots carefully for the next big opportunities.
Here are six stocks to sell now before the bear strikes again.
Stocks to Sell: Arista Networks Inc (ANET)
The provider of software and hardware just lost a patent-infringement lawsuit with rival Cisco Systems (CSCO). Despite the legal defeat, Arista Networks (ANET) shares actually spiked 6% in Wednesday trade. The company cited engineer “workarounds” to be put in place by the time the legal decisions are finalized.
Now, earlier this year I owned ANET, as its earnings power and relative price strength — along with an upgrade from Oppenheimer — caused me to be bullish. Yet like so many stocks in January, sellers took control and pushed the shares down sharply.
The selloff after a big run in the second half of 2015 is likely to continue, and that means now is the time to exit Arista.
Stocks to Sell: AutoNation, Inc. (AN)
Car dealer AutoNation (AN) has had a very good run for most of the last three years. Unfortunately, the company’s latest earnings report caused a precipitous plunge in the share price that essentially erased those past three years of outstanding share price performance.
The stock’s stall really blew out the gear box at the end of January, as the company reported a 16% drop in Q4 profit due to too many discounts and incentives.
The plunge in profits came even as car sales in the aggregate hit record highs. The company blamed those poor incentives and deep discounts for reducing its profit margins on new and used vehicles by some 11%.
The wrong turn on discounts tells me management is driving the company in the wrong direction, and as such it’s time to take AN shares out of your portfolio garage.
Stocks to Sell: Avago Technologies Ltd (AVGO)
Mobile device chipmaker Avago Technologies (AVGO) is the chief supplier to Apple (AAPL) and its iPhone 6, so it didn’t help the stock’s fortunes when news hit that Apple was rumored to be cutting iPhone 6 production by 30%.
And while Apple’s earnings were big, the company’s official outlook for iPhone sales was lowered for the first time in more than a decade.
Given the likelihood of a slump in iPhone sales going forward, it was no surprise that AVGO shares have had a rough go of it this year. And while the stock has shown some signs of its former bullish glory, the Apple news is likely too much of a hurdle for the chipmaker’s shares to overcome — at least for the first half of 2016.
Stocks to Sell: Dave & Buster’s Entertainment, Inc. (PLAY)
At the end of last year, I was a bull on the restaurant and entertainment chain due to sharp earnings per share growth and strong relative price performance. However, the very aggressive selling that took place in Dave & Buster’s (PLAY) stock early in the month represented was indicative of too many investors running for the restaurant’s exits.
The stock has come back off its January low, but since then it has failed to break through resistance at the 200-day moving average.
Given renewed worries about domestic growth and consumer spending, I think it’s wise to sell your reservation at Dave & Buster’s before your plate gets even colder.
Stocks to Sell: Royal Caribbean Cruises Ltd (RCL)
There’s nothing like a combination of a downbeat forecast and warnings from the World Health Organization about a mosquito-borne, birth defect-inducing disease called the Zika virus “spreading explosively” in the area that your cruise ship company services to put the smackdown on your stock.
That’s exactly what has happened to Royal Caribbean Cruises (RCL).
On Tuesday, RCL shares sank some 18% in intraday trade after the cruise line operator announced that Q1 and full-year 2016 earnings would fall well short of consensus estimates. The company now expects to earn 30 cents per share in Q1, and $5.90 to $6.10 a share for the full year. That’s much, much lower than the 46 cents per share in Q1 and $6.27 a share for the year that Wall Street expected.
So, if you’re still cruising with RCL in your portfolio, it’s time to disembark this sinking ship.
Stocks to Sell: Yahoo! Inc. (YHOO)
I must first admit that while I like many of Yahoo’s (YHOO) news sites and features, I am disappointed by the way the company has failed to hit the mark in terms of earnings, and of course share price performance.
The latest disappointment came on Tuesday.
Yahoo reported earnings per share of 13 cents, which actually met expectations. Revenue was higher than estimates too, coming in at $1.27 billion vs. estimates of $1.19 billion.
However, that didn’t help the stock much, as investors were left perplexed by Yahoo’s announcement that it still was planning a complicated reverse spinoff from its Alibaba (BABA) stake and its core business in Yahoo Japan, but also would consider offers for its core assets. Even a $400 million cost cutting plan that includes slashing 15% of its workforce couldn’t extricate the YHOO shares from hitting a new 52-week low.
Until the company gets its act together, the stock doesn’t deserve to stay in your portfolio.
As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.