In early February, the market was still reeling from a sizable setback that began in early January, and chatter about an impending a bear market wasn’t uncommon.
Fortunately, a 10% rebound in the meantime has restored investors’ faith in stocks, and even given them a reason to buy new ones to replace the ones shed in fear at the beginning of the year.
Interestingly though, the rising tide since early February hasn’t lifted all stocks with it. A few of these names have been conspicuously left out of the advance.
This inability to participate in marketwide gains is a red flag.
With that as the backdrop, here’s a closer look at 10 stocks to sell primarily because they failed to make progress when progress would have been easy to make, but secondarily because these companies just aren’t cutting it.
Sickly Stocks to Sell: Tyler Technologies, Inc. (TYL)
Tyler Technologies (TYL) was heading into its Feb. 17 earnings report with a bearish head of steam, and its numbers did nothing to stop the bleeding. As of Friday, TYL shares were down more than 30% from their late December highs, and the selloff is still going strong.
Last quarter, Tyler Technologies earned 59 cents per share on revenue of $158.9 million. Problem: The pros were expecting a profit of 65 cents per share of TYL
The 2016 outlook was even more alarming. The company offered profit guidance of between $3.33 and $3.45 per share for the current year, versus an average analyst estimate of $3.55 per share.
The software company has managed to win some new contracts in the meantime, but the market’s failure to completely ignore that news and keep wailing on TYL is a huge red flag.
Sickly Stocks to Sell: Casey’s General Stores Inc (CASY)
While the Tyler Technologies pullback before and after its mid-February earnings report was formidable, the one Casey’s General Stores (CASY) has been dishing out since its mid-December peak is pretty daunting, too. Since then, CASY shares are off 18%, and within striking distance of new multi-month lows.
Casey’s General Stores tried to put a positive spin on its prior quarter’s results, touting the fact that year-to-date income is up 28%. Not much was able to obscure the fact that fiscal Q3’s bottom line of 97 cents per share was four cents short of the year-ago profit figure. Low gas prices were the culprit, but investors weren’t sympathetic.
The convenience store chain is admittedly coming up with some creative ideas to boost its waning business, like online ordering, pizza delivery and a move to 24/7 hours at many of its stores. Investors, though, are concerned the company is venturing too far into uncharted waters.
Sickly Stocks to Sell: Endo International plc (ENDP)
The past few months have been nothing less than miserable for most stocks, with Valeant Pharmaceuticals Intl Inc (VRX) leading the charge after high-priced specialty drugs were politicized as public enemy No. 1. Biotech indices are down roughly 50% from their September’s highs, following the now-infamous Hillary Clinton tweet.
Endo International plc (ENDP) wasn’t left out of the sector-wide rout. One can’t help but wonder, though, if ENDP was destined to struggle even if the biotech industry as a whole didn’t. The stock has been steadily walking lower since April of last year, and as of today is still within easy reach of new 52-week lows.
And it’s not like many pros (or amateurs) are seeing this steep pullback as a value-driven buying opportunity. Just this month, Barclays lowered its target price of ENDP from $70 to $55, and the day before that, the biopharma company was forced to stop touting its Opana ER painkiller as abuse-resistant.
It’s the kind of small gaffe that could easily snowball.
Sickly Stocks to Sell: Jack in the Box Inc. (JACK)
Fast-food restaurant chain Jack in the Box (JACK) has also earned a spot on a list of stocks to sell, having skipped out on the recent marketwide rally. JACK is down 17% from its mid-December peak, with the bulk of that damage being the result last quarter’s disappointing results released in the middle of February.
In its fiscal Q1, Jack in the Box earned 93 cents per share on revenue of $470.8 million. However, the pros were calling for earnings $1.03 per share and sales of $475 million. Same-store sales grew 1.4%, but that too was a letdown compared to the 6.2% same-store sales growth achieved just a quarter earlier.
And it’s not as if anyone expects the restaurant chain to simply shrug off the headwinds that started to blow last quarter. The company predicted a same-store sales decline of 3% for the current quarter, largely stemming from the recently unveiled all-day breakfast menu from rival McDonald’s Corporation (MCD).
Sickly Stocks to Sell: Pepco Holdings, Inc. (POM)
Contrary to popular belief, not all utility stocks are safe havens. They can and do hit walls, and dish out trouble in a short period of time.
Pepco Holdings (POM) is one of those surprisingly troubling utility names, being added to a list of stocks to sell in the shadow of a 15% tumble in March-to-date alone — a selloff that may not be over yet. POM shares were plowing into new-low territory as of last week’s close.
On the flipside, any stock that’s valued so dependently on a merger with another similar company that it can lose 15% of its value in two weeks just because the status quo isn’t changing may be more trouble than it’s worth.
Sickly Stocks to Sell: Acadia Healthcare Company Inc (ACHC)
Just off the cuff, it would be easy to say Acadia Healthcare Company (ACHC) is losing ground — and can be counted among stocks to sell right now — thanks to last quarter’s earnings report from mid-February. Revenue of $495.3 million topped expectations of $490 million, but the per-share profit of 59 cents just missed estimates for a profit of 60 cents per share.
A closer look at the timing of the recent pullback, though, reveals ACHC was already sliding lower heading into earnings, and has continued to drift lower at the same pace.
The bigger driver of the brewing weakness from this network of (mostly) psychiatric facilities may actually be the slow and steady ramp-up of company debt to fund what’s becoming a long string of acquisitions. Long-term debt has grown from just over $1 billion at the end of 2014 to $2.2 billion as of the end of last year, and the company just priced $390 million worth of bonds.
The debt load is reaching unwieldy levels.
Sickly Stocks to Sell: Servicemaster Global Holdings Inc (SERV)
Servicemaster Global Holdings (SERV) wasn’t exactly firing on all cylinders headed into its Feb. 25 earnings report, having peaked at $42.21 on Jan. 29 and closing at $39.53 the day before its earnings news was released.
But the bearish response to what was a decent earnings announcement — topping income estimates — only affirmed the market’s pessimism. SERV closed at $37.60 the day after its fourth-quarter report to put shares down nearly 11% since that January high.
Things got even worse in the meantime. On Friday, a downgrade of SERV by Robert W. Baird sent shares down another 6% to a close of $36.17.
With investors responding to good news as bearishly as it responds to bad news, the 14% selloff since late January while the broad market has almost logged a gain of that same size shows that Servicemaster Global is fighting an uphill battle and merits a spot on the roster of stocks to sell before things get any worse.
Sickly Stocks to Sell: Clorox Co (CLX)
Conventional wisdom says when the market is in jeopardy then the smart move to make is a migration to safe havens like consumer staples. Stocks don’t always behave in conventional, rational ways, however, and supposed safe havens aren’t necessarily safe.
With that as the backdrop, bleach company Clorox (CLX) isn’t quite the safe place many investors would like to believe it is.
First and foremost, safe and stable or not, any consumer staple name with a trailing price-to-earnings ratio of 24.4 and a forward-looking P/E of 24.2 is decidedly overvalued relative to the rest of the market (and the sector), and is going to struggle to justify anything close to its current price.
Second — and this is a close second — the market is starting to notice the ridiculous valuation CLX brings to the table. Sterne Agee CRT lowered its stance on Clorox from “Buy” to “Neutral” back on Feb. 26. Now that one analyst has pulled the trigger, it becomes much easier for other analysts to do the same.
Sickly Stocks to Sell: Fibria Celulose SA (ADR) (FBR)
Most investors haven’t heard of Fibria Celulose SA (FBR), and that’s OK. For the investors who have heard of Fibria Celulose before and were mulling an entry in the Brazilian paper company’s stock after its four-month, 42% tumble, though … don’t. There’s still too much risk of further downside from FBR.
Last quarter’s numbers from Fibria Celulose weren’t bad. The company swung to a much-needed profit. But, Moody’s recently downgraded the company’s debt, which stands to make life very difficult for the debt-heavy company in the very near future.
Another reason to avoid FBR at all costs: Brazil’s government is still swimming in scandalous problems, and that’s still sapping the economy.
Sickly Stocks to Sell: J2 Global Inc (JCOM)
Finally, add J2 Global (JCOM) to your list of stocks to sell primarily due to an oddly weak performance despite the bullish environment … at least acknowledging the bulk of that weakness took shape on Thursday of last week when it fell 20% … translating into a 36% pullback year-to-date.
J2 Global provides a variety of internet-related services, mostly to small businesses. It’s profitable, and with a forward-looking P/E of only 10.7, some would say it’s even undervalued.
Citron Research, however, doesn’t agree.
While his bearish thesis on JCOM is like all the others in that it’s loud, bombastic and lacks any real amount of substance, it doesn’t matter — Left has planted a seed in traders’ minds, and right or wrong, that’s going to work against JCOM until the market finally forgets about it a few weeks from now.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.