As we head into the market’s worst-performing month, there’s no better time to find stocks to sell from your portfolio than now. Since 1928, the S&P 500 Index has logged an average loss of 1.1% in September, according to Yardeni Research.
True, this is just an average, and the bull market has been surprisingly frisky of late. Still, there’s nothing wrong with respecting the long-term trend. The poor outlook for equity performance over the next few weeks means tactical investors would be wise to find stocks to sell out of their portfolios, lest they act as a drag on performance at a time when the tide is going out.
As for identifying potential stocks to sell, equities flashing sell signals on a technical basis that have a seasonal tendency to decline at this time of year are obvious candidates.
To find these names, we screened the market for companies with market capitalization of at least $2 billion flashing signs of technical weakness. At the same time, these names have a poor long-term track record in September.
Furthermore, in every case, these shares have recently carved out the sell signal of a death cross. Not coincidentally, the fundamentals aren’t working in favor of these companies.
Based on these criteria, here are five stocks that should be thrown overboard:
Stocks to Sell: Eastman Chemical (EMN)
Click to Enlarge Market Capitalization: $10 Billion
Average Sept. Loss: 0.4%
Eastman Chemical Company (NYSE:EMN) found itself bottled up in technical terms even before reported weak quarterly results last month.
EMN has been trapped under its 50-day moving average since May and made another failed attempt at a breakout over the last couple of sessions. With the 50-day moving average in a downtrend — and cutting through a death cross — the outlook is not good.
Part of the problem? Eastman shares dropped off a cliff in late July after missing profit expectations in the second quarter. Sales, too, dropped on declining sales prices across the board.
It also doesn’t help that EMN has seasonality working against it. Shares have lost an average of 0.4% in September over the last decade, according to data from Thomson Reuters Stock Reports.
On a fundamental basis, lower revenue and collapsing operating margins make EMN a hard name to like in the chemical sector.
Stocks to Sell: Genpact Limited (G)
Click to Enlarge Market Cap: $4.9 Billion
Avg Sept. Loss: 2.6%
Genpact Limited (NYSE:G) is having an underwhelming year so far and looks to have more weakness ahead. The stock is off about 5% for the year-to-date and has been stuck in a relentless downtrend since June. A recent death cross adds further pressure on shares.
Analysts note that declining earnings and revenue growth will make it hard for shares in the business processes and services company to outperform the market. For example, Morgan Stanley recently downgraded G stock to “underweight” from “overweight” not long ago.
While managing to beat estimates in its latest earnings report, the market rewarded Genpact by taking shares to the woodshed as the company lowered its full-year outlook.
And then there’s seasonality, which is ugly for G stock around this time of year. Shares have lost an average of 2.6% in September and 0.7% in October over the past 10 years.
Stocks to Sell: Helen of Troy (HELE)
Click to Enlarge Market Cap: $2.5 Billion
Avg Sept. Loss: 1.7%
Helen of Troy Limited (NASDAQ:HELE) hasn’t exactly covered itself in glory with its long-term seasonal performance in September, and it recently carved out the sell signal of a death cross too.
Over the last decade, HELE has logged an average loss of 1.7% over the course of the month. With both the 50- and 200-DMA’s in an accelerating downtrend — on a 4% YTD loss — there’s no upside price momentum to be found.
Mixed quarterly earnings served to dent sentiment on the personal care products company, as Helen of Troy’s profits went into decline. It also doesn’t help that HELE warned that it expects a decline in sales for its nutritional supplement division.
These lackluster fundamentals don’t bode well for shares in the weeks ahead.
Stocks to Sell: Red Hat (RHT)
Click to Enlarge Market Cap: $13.05 Billion
Avg Sept. Loss: 0.08%
Shares in Red Hat Inc (NYSE:RHT), a distributor of Linux and open source software, are having a tough year. The stock is down more than 12% YTD. Unfortunately for shareholders, September doesn’t look like the month that will turn things around.
Over the last 10 years, RHT has lost an average of 0.8% in September and 1.6% in October. Have a look at the technical picture and there’s reason to expect more such weakness this time around too.
In its most recent earnings report, Red Hat shares wafted lower after beating earnings but guiding lower. The company attributed its weak guidance to costs from its buyout of 3scale.
As Red Hat heads into its next earnings report on Sept. 19, RHT stock remains trapped under resistance at its 50- and 200-DMAs and recently made a death cross. It’s also concerning that both key levels have eased into a downtrend, potentially taking RHT with them. Increasing competition in the public cloud computing space is the main source of investor anxiety.
Stocks to Sell: Spirit Airlines (SAVE)
Click to Enlarge Market Cap: $2.82 Billion
Avg Sept. Loss: 1.4%
Like the rest of the airline sector, Spirit Airlines Incorporated (NASDAQ:SAVE) is laboring under investor worries about overcapacity, declining yields and pressure on unit revenue. Although shares in the no-frills carrier have held up OK so far — they’re essentially flat YTD — September looks turbulent.
SAVE stock hasn’t recovered since its early August decline after posting better-than-expected earnings, but revealed pressure on its yields that it expects to continue into the summer. And Spirit posted its slowest growth of the year in July, growing capacity by 17.1% year over year. That brings its 2016 growth to 23.5%, much lower than its 30% growth in 2015.
What’s more, shares have had a hard time remaining above key levels throughout 2016 as it is. A recent death cross only adds to the downside bias, especially now that SAVE has fallen significantly below both its 50- and 200-DMAs.
Seasonality is another knock against Spirit Airlines this month. Shares have lost a market-lagging average of 1.4% over the past 10 Septembers.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.