As the calendar flips to May, the stock market’s worst six months in terms of seasonality begins. And given that it’s a presidential election year, the clouds are even more ominous. Investors looking to “sell in May and go away” should start looking now at the weakest holdings in their portfolios to dump.
According to Jeff Hirsch of Stock Trader’s Almanac fame, the Dow Jones Industrial Average has lost an average of 0.8% in May during an election year since 1952.
Certainly, there is a lot to worry about this time around. Corporate earnings have been disappointing and are on track for their worst performance since 2009. The Federal Reserve has opened the door to a June rate hike. Crude oil remains in a global oversupply situation. U.S. economic growth has stalled. And big tech stocks have been under pressure as the smartphone market slows and the and consumer PC market remains moribund.
To prepare for the “sell in May and go away” phenomenon, here are 10 stocks that are worth dumping.
Stocks to Sell in May and Go Away: Apple (AAPL)
One-time momentum sweetheart and the U.S. market’s single most important stock, Apple Inc. (AAPL), has collapsed back to its January-February lows after a disappointing first-quarter earnings report.
Everyone expected Apple to report its first quarter-over-quarter revenue decline in 13 years, but Apple managed to dip below a low bar with $50.56 billion in revenues versus $51.97 billion expected.
Moreover, activist raider investor Carl Icahn exited his long position in AAPL stock. Remember back in 2014 he said AAPL was a “no brainer” because of an undercapitalized balance sheet. He then pressured management to increase the debt load from $35 billion to just shy of $80 billion, earning himself hundreds of millions in the process.
There are few points of optimism for Apple stock right now. Most people are now looking ahead toward the iPhone 7 — which will almost certainly come in the second half of the year — as the only thing that can hoist AAPL out of the doldrums. Unfortunately, it looks like at least a major form factor change will wait until 2017.
Edge Pro subscribers are enjoying a 230%+ gain in their May $107 AAPL puts first recommended on April 18.
Stocks to Sell in May and Go Away: Starbucks (SBUX)
Shares of Starbucks Corporation (SBUX) recently came under pressure after missing comp-store sales growth forecasts. The earnings report on April 21 came in largely as expected, with revenues growing 9.4% over last year but slightly missing the consensus forecast.
Also this month, Dunkin Brands Group Inc (DNKN) took aim at Starbucks’ new loyalty program, releasing its own mobile phone app. Starbucks’ loyalty plan itself has gotten plenty of criticism for making it more difficult to earn free coffee.
Technically speaking, SBUX shares have fallen into a fresh downtrend, losing their 50- and 200-day moving averages and setting up a possible downside breakout from a long trading range going back to last summer.
The next expected potential catalyst for Starbucks won’t be until July 21 (estimated). Analysts are looking for earnings of 49 cents on revenues of $5.3 billion.
Stocks to Sell in May and Go Away: Intel (INTC)
Chipmaker Intel Corporation (INTC) continues to face headwinds from a slowdown in consumer PCs, as the company still gets 60% of its revenues from the microprocessor and chip business.
With upcoming categories like the Internet of Things not yet big enough to move the needle to counteract that downward pressure, Intel announced it would cut more than 11% of its workforce. That, as well as other expense cuts, should save the money $1.4 billion by mid-2017.
Forward guidance remains cautious, with the company dropping its full-year revenue guidance from mid- to high-single-digit growth to mid- to low-single-digit growth.
And Intel’s chart is ugly, with shares plunging out of a two -month consolidation range to drop below its 50-day and 200-day moving averages in one fell swoop.
As a result, Edge Pro subscribers are enjoying a 155% gain in their May $31 INTC puts.
Intel is expected to release its next quarter’s results on July 20 after the close. Analysts are looking for earnings of 53 cents per share on revenues of $13.5 billion.
Stocks to Sell in May and Go Away: American Airlines (AAL)
American Airlines Group Inc (AAL) shares are on the decline after reporting a not-at-all-impressive first-quarter report.
Revenues of $9.44 billion were off 4% year-over-year and merely met analyst expectations. Meanwhile, adjusted earnings came to $1.25 per share — thanks in part to cheaper fuel — which did manage to beat Wall Street estimates. But consolidated passenger revenue per average seat mile declined 7.5% to 12.4 cents.
Management guided first-quarter PRASM to down 7%-8% from down 6%-7% on April 11, which spooked many. AAL followed that up by saying it expected unit revenues to drop 6%-8% year-over-year for Q2.
Shares are now testing lows from the September/October 2014 pullback.
American Airlines is slated to report results July 22 before the bell. Analysts are looking for earnings of $1.63 per share on revenues of $10.3 billion.
Stocks to Sell in May and Go Away: United Continental (UAL)
United Continental Holdings Inc (UAL) shares have been slammed after passenger revenue guidance for the second quarter was cut to down 6.5%-8.5% vs. down 7.4% in Q1. That was part of an earnings report that showed a 19% decline in profit and a nearly 5% decline in revenues. Management noted that demand isn’t keeping pace with industry capacity increases.
Analysts at Cowen downgraded the stock on the lower PRASM guidance and structural issues.
United also bowed to the activists, installing a pair of new board members and naming former Air Canada CEO Robert Milton as non-executive chairman.
Shares are testing support near the January/February low. We’ll see if there’s any indication of a turn around on July 21, when UAL is scheduled to report next. Analysts are looking for earnings of $2.52 per share on revenues of $9.37 billion.
Stocks to Sell in May and Go Away: Walmart (WMT)
Wal-Mart Stores, Inc. (WMT) was enjoying a pretty fruitful 2016 until just recently, when shares slammed below their 50-day moving average for the first time since December. That ended a four-month-plus uptrend, which itself reversed some of the losses of the epic 63% selloff suffered in 2015.
Walmart’s gains in 2016 had been pretty resilient, with the stock bouncing back after an initial selloff following Q4 earnings in February. WMT suffered an 8% decline in revenue and guided lower for the rest of the year. Specifically, Walmart now thinks revenues will be flat, versus a previous projection of 3% to 4% growth.
Concerns about higher wages, an increase to the minimum wage and falling sales remain a headwind.
Walmart’s chance to turn things around should happen on May 19, when it’s expected to report. Analysts are looking for earnings of 88 cents per share on revenues of $112.8 billion.
Stocks to Sell in May and Go Away: Netflix (NFLX)
Netflix, Inc. (NFLX) had an awful April, and May probably won’t bring any respite.
NFLX shares look ready to continue the recent downtrend started in the wake of disappointing Q2 forward guidance and slowing new subscriber additions.
On April 18, Netflix reported revenues of $1.96 billion — up 24% year-over-year, but just shy of consensus estimates. Meanwhile, tamping down a fantastic performance in subscriber additions for the quarter — U.S. adds of 2.23 million and internationals of 4.51 million, both of which beat the Street — was a crummy outlook for the current quarter. Netflix sees international subscriber adds of 2 million, as well as 500,000 in the U.S., whereas Wall Street hoped for 3.45 million and 550,000, respectively.
Analysts also are concerned about profitability as competition for exclusive content among streaming competitors like Amazon.com, Inc. (AMZN) heats up.
The company is expected to report its next batch of results on July 18 after the close. Analysts are looking for earnings of 3 cents per share on revenues of $2.1 billion.
Stocks to Sell in May and Go Away: Procter & Gamble (PG)
Disappointing quarterly results have pushed Procter & Gamble Co (PG) down of late.
Pro-forma earnings dropped 3% over last year to 86 cents per share, while revenues fell 6.9% to $15.76 billion. While profits beat Wall Street estimates, that sales figure fell just shy. The blame fell on no single division, with significant declines in grooming, healthcare, and beauty and family care divisions all conspiring to hold Procter & Gamble back.
Forward guidance was also weak, with management expecting earnings to be significantly lower than prior year on increased advertising, higher tax rate, currency headwinds, and lower non-operating income. PG says core earnings will decline 3% to 5% for the year.
Shares have fallen below a tight trading range near $82 going back to February, which bodes poorly.
Procter & Gamble will next report results on August 2 before the bell. Analysts are looking for earnings of 75 cents per share on revenues of $15.8 billion.
Stocks to Sell in May and Go Away: Merck (MRK)
Merck & Co., Inc. (MRK) faces a number of company-specific issues amid broader weakness across the whole pharmaceutical sector.
Merck’s woes include the expiration of drug patents, which means that above-average sales and earnings per share growth is unlikely to arrive until 2019, according to analysts at Societe Generale, which initiated coverage of the stock in early April. Cholesterol-lowering drugs Zetia and Vytorin will go off patent protection in April 2017.
Looking ahead, a sales turnaround will depend on the success of Keytruda, an immunotherapy cancer treatment, and Zepatier, a hepatitis C treatment.
MRK shares have been slammed down and out of a strong shorter-term (three-month) uptrend, and it — as well as pharma/biotech stocks as a whole — has remained in a persistent long-term downtrend since last summer on rising political pressure against high drug prices and valuation concerns.
Merck’s earnings report, May 5 before the bell, could set an early bearish tone. Watch for earnings of 85 cents per share on revenues of $9.5 billion.
Stocks to Sell in May and Go Away: Skyworks Solutions (SWKS)
Skyworks Solutions Inc (SWKS) — a big Apple component supplier — issued weak forward guidance on April 28 as Apple’s inventory problems continue to weigh on production rates.
Analysts at MKM Partners are calling the year a “rebuilding” one for the company given the issues facing Apple. As we mentioned before, the upcoming iPhone 7 launch is largely expected to be a placeholder (keeping the same form factor) ahead of an all-glass iPhone 8 launch next year.
Cowen analysts note possible competitive pressures from Qorvo (QRVO).
SWKS shares have been slammed below their 50-day moving average as a result of all these headwinds.
Skyworks is expected to report results next on July 28 after the close, but investors will get an update before that at the annual meeting on May 11.