Finding stocks to sell because they’re poised for short-term underperformance is no easy task. Yet tactical investors always need to be on the lookout for such stocks — and that’s especially true right now.
The end of summer is typically a decent, if sleepy, time for stocks. Trading volume drops, the news flow cools off and it’s easy to be lulled into complacency.
It also tends to be the calm before the September storm.
Over the long haul, the S&P 500 has an average price gain of 0.6% for August, according to Yardeni Research. That’s pretty good. It’s a middle-of-pack month for performance.
September, however, is a returns killer. With a long-term average price decline of 1.1%, it’s far and away the ugliest month for U.S. equities.
Ideally, tactical investors will wring every basis point of outperformance there is to be had in August, because history shows they’re going to be swimming against the market tide soon enough.
By ridding a portfolio of stocks to sell — that is, stocks set to underperform the U.S. equity benchmark — a tactician adds a cushion heading into the toughest month for investors.
It’s nigh impossible to predict short-term market moves, but technical analysis affords some tools that can give tactical investors better odds.
Stocks that are flashing technical sell signals like the dreaded death cross always bear further scrutiny. Names that have a poor track record of seasonality at this time of year are also good candidates to sell. A stock that is overbought likewise gets a red flag.
After screening the U.S. market for stocks with technical weakness and poor seasonality, these names stood out as the best stocks to sell as we head into August.
Stocks to Sell: Bob Evans Farms Inc (NASDAQ:BOBE)
Bob Evans Farms Inc (NASDAQ:BOBE) typically suffers seasonal doldrums in late summer. Disappointing earnings and a weak forecast make BOBE look like a loser this time around too.
BOBE stock has lost an average of 2.9% in August over the last decade, according to Thomson Reuters Stock Reports. It has been especially weak this year because the restaurant-chain side of the business has been losing sales.
On a technical basis, BOBE looks like a dog right now too. Shares carved out a death cross mid-month and then set a 52-week low.
If BOBE had managed to maintain upside momentum off that low, maybe it could have recovered. Rather, it just rolled over.
Stocks to Sell: CACI International Inc (NYSE:CACI)
CACI International Inc‘s (NYSE:CACI) chart bears further watching. The stock is in the midst of testing support at its 50- and 200-day moving averages. So far it’s failing, but maybe it can pull it off.
Moreover, CACI recently inked a new contract with the U.S. Navy, which provided a nice boost.
On the other hand, it can be argued that CACI, an information technology defense contractor, has spent all its momentum after bouncing off a 52-week bottom. After all, it made a death cross not long ago. Moreover, it’s starting to look overbought.
Seasonality is not on CACI’s side either. Shares have lost an average of 0.4% in August over the last 10 years.
Stocks to Sell: CVS Health Corp (NYSE:CVS)
Analysts expressed concerns over CVS Health Corp (NYSE:CVS) after the drug store chain and pharmacy benefits manager lost business to a major competitor in June. Shares have struggled ever since.
CVS formed a death cross around the second week of July and rallies keep petering out. It failed to break resistance at its 200-DMA since, which was the second time it was bottled up in two months.
If it has any momentum, it’s to the downside. Shares have a price momentum rating of 3, according to Thomson Reuters. For comparison, the S&P 500 rates at 6.6. Furthermore, shares have underperformed by an average of nine percentage points over the last 10 years.
Stocks to Sell: Rite Aid Corporation (NYSE:RAD)
Rite Aid Corporation (NYSE:RAD) is heading into a seasonally weak period just as it confronts the mother-of-all headwinds. It looks all but certain the regulators are going to block its acquisition by Walgreens Boot Alliance Inc (NYSE:WBA).
That, more than anything, is why RAD’s chart is so troubling. Notwithstanding a couple instances of a dead cat bounce, RAD looks poised for a period of lackluster trading as the market recalibrates the valuation for a company that was supposed to be taken out.
Additionally, RAD is a long-time underperformer at this time of year. Over the last decade it’s posted an average loss of 2.7% in August and 4.4% in September.
Stocks to Sell: Snap-on Incorporated (NYSE:SNA)
Snap-on Incorporated (NYSE:SNA) beat Wall Street’s profit estimate in the most recent quarter, but that failed to reassure investors because revenue missed. With about a third of sales coming from Europe, the top line has ample obstacles from Brexit and forex.
This also happens to be a seasonally weak time of the year for SNA. It has lost an average of 1.5% in August and 1.9% in September in the last decade. A recent death cross tips the odds toward losses this year too.
SNA came up against key levels soon after carving out a death cross and failed to break through. Indeed, it’s been making lower highs and lower lows ever since.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.