Christmas is only two months away, and that means chaos for adults and opportunity for retailers and businesses alike. It is the one time of the year where consumers spend money like it was going out of style. In many instances, families will save all year just so they can splurge during the holidays.
That’s why the fourth quarter is important for so many sectors of the market. Many companies generate one-third or more of their total annual sales during this three-month stretch.
While many companies will win during the holiday season, others will lose and will greatly disappoint shareholders with worse-than-expected sales.
In looking throughout the market, there are several stocks are poised to fall significantly during this holiday season as bigger, better businesses steal their milk and cookies.
Stocks to Sell Before the Holidays: Sprint (S)
Sprint Corp (NYSE:S) has had a solid six months with gains of 95%. Those gains are misleading, and reflect the performance of back-t0-back quarters where Sprint was mediocre at best.
Fact is that Sprint’s revenue is only flat year-over-year and it is still posting per-share losses. At the end of the day, the only relevant question for a company with $37 billion in debt and another $17 billion in off balance sheet debt is whether it is creating real bottom line profits each quarter. I am not talking about adjusted free cash flow or Ebitda.
This is a company that needs to pay its own bills with operations, after depreciation, interest and any other adjustments that management wants to make.
Ultimately, Sprint stock has recovered greatly this year, showing that it really was genius for parent Softbank to form those two off balance sheet financing vehicles to help hide costs. However, the stock has gotten too far ahead of itself, and will come back down to earth as investors realize that real risks still exist.
Stocks to Sell Before the Holidays: GoPro (GPRO)
GoPro Inc (NASDAQ:GPRO) stock is still way off the highs it set in 2014. However, GPRO has recovered some of its losses and now trades 80% off its 52-week low.
Those gains are in response to three big product launches. The Hero5 is now out, as is the smaller Hero5 Session, and GoPro unveiled the Karma Drone. Collectively, this gives GoPro a nice lineup of new products headed into the holidays.
The problem is that GoPro may have waited too long. There is no question that Hero4 and GoPro’s last generation products were must-have among millennials, but smartphone cameras have grown more advanced and many of today’s best hardware is waterproof and more durable.
Given that GoPro already operated in a very niche market, and there is no proof to suggest its products must be replaced, I expect sales to underwhelm investors. The one wildcard is drones, but unfortunately, GoPro may have waited too long with other players already in the space. Altogether, GPRO has a good shot to give back previously earned gains.
Stocks to Sell Before the Holidays: Fitbit (FIT)
I personally like Fitbit Inc (NYSE:FIT), and when you look at its valuation and growth, it does not seem possible that FIT could go even lower. The reason for FIT stock’s losses, however, is not a lack of growth, but rather Wall Street betting against Fitbit versus larger competitors. Investors simply question its longevity.
I expect those questions to get louder during the holidays. Last year, Fitbit was the big Christmas winner, but now it is competing against a new and improved Apple Watch and is yet to release any new smart devices itself since the Blaze in Q1. The Blaze has been great, but Fitbit needs something more to give itself a chance to standout.
The company’s strategy of updating one of its legacy basic wearable products and a slew of new Blaze and Alta accessories won’t cut it this year. The market for Blaze and Alta accessories has grown with countless copycats that sell similar accessories at half the cost of Fitbit. Thus, don’t be surprised if FIT heads even lower as the company gives investors real reason to question its direction.
Stocks to Sell Before the Holidays: Groupon (GRPN)
The fourth quarter is very important for Groupon Inc (NASDAQ:GRPN).
Last year, Groupon created almost 30% of its total sales during the fourth quarter. The problem for GRPN is that revenue and billings growth is decelerating.
Sure, North America is performing OK with 8% billings growth during its last quarter. The EMEA and Rest of World regions, however, are performing horribly, with double-digit declines. Combined, Groupon is barely growing.
After a 65% gain in 2016, GRPN stock is very likely to pullback as it continues to lose market share and prove that the best days are long behind it.
Stocks to Sell Before the Holidays: Amazon (AMZN)
Amazon.com, Inc. (NASDAQ:AMZN) is a great company, and after the run it has been on, it’s very hard to bet against AMZN right now.
However, this is a company that has added $135 billion in market capitalization over the last year, and with a $400 billion valuation, you have to wonder how much longer it can maintain such high multiples and beat such high expectations.
With that said, I am sure Amazon will perform great during the holiday season, and long-term AWS might very well be worth $300 billion by itself. However, Amazon still has a long ways to go, and with it now twice the valuation of a much larger Wal-Mart Stores, Inc. (NYSE:WMT), AMZN stock looks poised for a pullback.
Stocks to Sell Before the Holidays: Salesforce (CRM)
Salesforce.com, inc. (NYSE:CRM) is a $55 billion company, a valuation that many believe is too high given its struggle to create profits and rising competition. While salesforce.com is not a company with direct ties to the holidays, there is still too much smoke regarding its interest in Twitter Inc (NYSE:TWTR).
For the record, I think buying TWTR is a fantastic idea for salesforce.com. However, CRM investors don’t seem to like it, mainly because of its cost and unknowns of how CRM would use Twitter. One analyst thinks buying the social network could cause Salesforce to lose up to $17 billion in value.
As a result, CRM has fallen from $80 to $72 since the buyout talks began. According to recent reports from CNBC and Reuters, CRM is still very much in active discussions with Twitter.
I think CRM will make a bid and acquire TWTR, which will keep pressure on CRM stock. If not, the discussions and unknowns will weigh on CRM. Either way, salesforce.com’s valuation is headed lower, thanks to Jack Dorsey.
Stocks to Sell Before the Holidays: Sodastream (SODA)
Sodastream International Ltd. (NASDAQ:SODA) has rallied 55% this year.
After steep year-over-year declines last year Sodastream an impressive growth rate of 19% during its last quarter, with strong growth in both the Americas and Western Europe. While very impressive, it is only one good quarter behind another decent quarter after two years of hardships and disappointments.
In other words, SODA has not given investors a reason to trust in its performance. After such big gains, it looks like a good time for SODA to pullback and investors to take profits. Fact is there’s no reason to trust this company after years of letdowns. Maybe Sodastream will prove me wrong, but I am not betting on it.
As of this writing, Brian Nichols was long AMZN stock.