Far from being the cruelest month, April has traditionally been a good one for market performance. Still, tactical investors know how important it is to find stocks to prune from their portfolios in the short-term if they want to outperform.
April is the third-best month for stocks on a historical basis. Since 1928, the S&P 500 has gained an average of 1.3% this month, according to Yardeni Research. Only July and December have offered superior price gains.
But naturally, unless you’re 100% invested in the S&P 500, you’re trying to outperform the broader market. Complicating matters is that you have to beat the S&P 500 by a wide enough margin to recoup your trading costs. That’s why it’s imperative to focus on more than winners — you also have to sell stocks that threaten to hold back your returns.
Predicting the short-term moves of any security is tough business, but technical analysis and an assessment of current fundamentals can help. Stocks flashing technical sell signals that traditionally underperform the S&P 500 at this time of year should make any short list of stocks to sell for April. If the fundamentals are weak as well, you’ve got a name in a precarious position right now.
After sifting through the market using those criteria, these are five stocks that are likely to lag this month.
Stocks to Sell: Aeropostale Inc (ARO)
If a company says it’s considering putting itself up for sale and the stock falls instead of rising, you know you’ve got a dog.
That was the case with teen retailer Aeropostale Inc (ARO) a few weeks ago.
ARO’s problems are well-known. Mall traffic is down and it’s hopelessly out of fashion. It’s cutting costs (another move that’s supposed to boost a stock), but if management is talking sale, the business sounds doomed.
Aeropostale recently failed a test at its 50-day moving average. Of course, ARO usually trades well below that key level, so no surprise there. This is a stock stuck in a long downtrend with no technical or fundamental catalysts to break the spell.
Stocks to Sell: Chipotle Mexican Grill, Inc. (CMG)
Click to Enlarge Chipotle Mexican Grill, Inc. (CMG) is another stock that can’t break out past its 50-DMA thanks to rising costs and tumbling sales. Try as it might, CMG is struggling to recover from the E. coli outbreaks that tarnished its image as a healthful fast-food chain.
Same-store sales are dropping in the 20% range month after month. Wall Street analysts are falling over themselves to slap sell calls on CMG.
Some restaurant companies have bounced back from outbreaks in the past, but they had some critical advantages over CMG. For one, Chipotle doesn’t franchise its name, so there’s no one to share the costs. More devastating, the outbreak happened in the era of social media.
Stocks to Sell: Fitbit Inc (FIT)
Not so fast.
Fitbit Blaze is more popular on Amazon.com than Apple Inc.’s (AAPL) Apple Watch, but so what? They’re not direct competitors.
In fact, FIT doesn’t even call the Blaze a smartwatch. Rather, it’s a fitness watch that’s more narrowly focused than Apple Watch.
Fitbit has been a terrible stock since its initial public offering, with no upside price momentum to speak of. Shares are currently testing their 50-day MA, but we’ve seen it fail to definitively break through many times in its short life.
Stocks to Sell: GoPro Inc (GRPO)
Click to Enlarge Talk about a lack of conviction.
GoPro Inc (GRPO) has been trading along its 50-day MA for a months, and the fact that it can’t stage a breakout is as good as a failed test.
Of course, the 200-day MA is in a significant downtrend, too which is a sign of a sick stock.
More troubling for short-term traders is that GRPO used to get the odd pop now and again on an upgrade or positive headline, but the market seems to be getting tired of such moves.
The fundamental knock on GRPO is that as a company that makes cameras, it has no competitive advantage. True, it’s expanding into drones, but GoPro hardly has that market to itself either.
Stocks to Sell: Shake Shack Inc (SHAK)
Click to EnlargeHere’s another new stock that benefitted investors who were able to get the initial public offering price at the expense of just about everyone else.
Shake Shack Inc (SHAK) is up a whopping 75% from its IPO price of $21 a share. Too bad rank-and-file investors had to buy shares on the open market. SHAK closed its first day as a publicly traded company at about $45. It’s off 20% since then.
Even worse, hype led it to peak above $90, and Shake Shack is down 60% from that high.
SHAK is currently making a run at its 50-day moving average, but it has failed to clear the level definitively five times before. Indeed, this is a trapped stock.
EDITOR’S NOTE: We have corrected the Fitbit frame to include the proper name of the Fitbit Alta. We apologize for the error.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.