October is a good time to get merciless about finding stocks to sell in your portfolio. After all, time is running out if you need to salvage your returns before we close the trading books on 2016.
On the plus side, the final quarter of the year is typically a strong one for stocks with accelerating month-to-month gains. Over the long term, the S&P 500 Index averages a gain of 0.5% in October, 0.7% in November and 1.4% in December, according to Yardeni Research.
The downside is tactical investors will have a hard time beating that benchmark if they hang on to equities destined to underperform in the near term. Although it’s hard to predict what stock prices are going to do over short periods of time, technical analysis and seasonal factors can tilt the odds in a tactician’s favor.
Stocks with deteriorating technicals are a good place to look for stocks to sell because of short-term weakness. A name that is entering a period of poor seasonality is also a good bet. And, of course, it never hurts to have fundamental deficits or at least some negative news flow.
After screening the S&P 500 according to the above criteria, we came up with a short list of stocks to sell. These are the five that really stood out:
Stocks to Sell: C.H. Robinson Worldwide (CHRW)
Click to Enlarge On a technical basis, C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) has a chance for better days ahead. Shares recently overcame both their 50- and 200-day moving averages. However, it doesn’t look like it can stay above those key levels for long.
CHRW just carved out the sell signal of a death cross and looks set to break support at the 200. This isn’t a company that appreciates life above the 50-day MA for long stretches of time.
Seasonality is weak, too. Over the past decade, CHRW has lost an average of 0.5% in October, according to Thomson Reuters Stock Reports. A recent downgrade from Barclays because of stabilization in trucking markets suggests more weakness ahead as well.
Stocks to Sell: Frontier Communications (FTR)
It also doesn’t help that the regional telecommunications company with the sky-high dividend yield is experiencing some turmoil in the C-suite after its finance chief stepped down. Murmurs that it could cut the dividend in 2018 also weigh on shares.
On a seasonal basis, FTR stock hates this time of year. It generated an average price decline of 2.2% in October over the past 10 years.
Stocks to Sell: Level 3 Communications (LVLT)
Click to Enlarge Level 3 Communications, Inc. (NYSE:LVLT) really hates this time of year. Over the past decade, shares have lost an average of 6.8% in October and 0.1% in November. This year doesn’t look good either.
The technicals were already falling apart even before LVLT made a mid-month death cross. A recent attempt to rally off a low fizzled out quickly and shares remains well out of range of testing key levels.
A disappointing second-quarter performance is going to leave a sour taste in the market’s mouth for some time.
Stocks to Sell: NRG Energy (NRG)
Click to Enlarge The market really, really did not like NRG Energy Inc’s (NYSE:NRG) winning bid for the assets of bankrupt solar company SunEdison, Inc. (OTCMKTS:SUNEQ). Shares tumbled in the aftermath, made a failed attempt to rally and then carved out a death cross.
NRG was already struggling with volatile earnings and this deal didn’t do much to improve investor sentiment, which is seasonally poor anyway. Over the past 10 years, NRG has lost an average of 2.3% in October.
The stock plunged through the 50-day MA in June and has been in a series of steep selloffs ever since. The latest price action suggests the bottom is not yet in.
Stocks to Sell: Whole Foods Market (WFM)
Click to Enlarge Whole Foods Market, Inc. (NASDAQ:WFM) continues to see its same-store sales and margins get squeezed by intense competition. Indeed, comps fell a worse-than-expected 2.6% last quarter. At the same time, shares remain too pricey to be attractive to value investors.
WFM has been trapped under its 50-day MA since July and is far away from making any kind of run at the key level. It recently bounced off a low after making a death cross but the upside momentum burned off after a handful of sessions.
As for seasonality, the market isn’t a fan of WFM around this time of year. In the past decade, WFM has lost an average of 1.3% and 3.2% in October and November, respectively.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.