December is the second-best month for market performance, so if you’re looking to beat the benchmark, you can’t just look for outperformers. You also have to find laggard stocks to sell before they weigh down your total returns.
Since 1928, the S&P 500 has enjoyed an average price gain of 1.4%, according to Yardeni Research. Only one month is better, and that’s July at 1.5%.
Some part of this is due to window dressing. That’s when portfolio managers chase performance in some of the hottest names in order to spruce up returns before year-end. It can be partly attributed to any Santa Claus rally, too.
Whatever the reason, market performance in the year’s final month raises the bar for any tactician. Stocks that have a good chance of dragging down total returns won’t do. Happily, there are tools you can use to help identify stocks to sell headed into December.
It’s nearly impossible to predict short-term price movements, but charts can give you an edge. Stocks that find themselves bottled up by key technical levels or carving out a death cross are never particularly inspiring. A long history of poor seasonality is another knock against a company.
After searching for stocks with weak technicals, poor seasonality and perhaps some fundamental or headline risk to boot, five blue-chip names stood out as stocks to sell — or avoid, or consider hedging against — for December.
Blue-Chip Stocks to Sell for December: Amgen (AMGN)
Biotechnology stock Amgen, Inc. (NASDAQ:AMGN) is delivering good news from some of its drug trials, but that has been more than offset by a chilling warning from management.
AMGN, you see, is losing pricing power to pharmacy benefits managers. That’s good news for PBMs, and questionably good news for consumers … but it’s murder for pharmaceutical and biotech companies (specifically, their margins).
This fact helped the stock into technical trouble. Amgen broke support at its 200-day moving average at the end of last month on its way to forming a recent death cross. The relative strength indicator shows no sign of a trend reversal, and neither does the MACD.
Sure, AMGN managed to bottom off a 52-week low at the beginning of November, but any upside momentum has since petered out.
As for seasonality, the market doesn’t tend to favor this name around this time of year. AMGN has lost an average of 0.3% in December over the last decade, according to Thomson Reuters Stock Reports.
Blue-Chip Stocks to Sell for December: Colgate-Palmolive (CL)
Colgate-Palmolive Company (NYSE:CL) might be a great total return holding for the long haul, but on a short-term basis, it’s probably going to hold your returns back compared to the broader market.
Colgate stock was slammed after it missed quarterly sales estimates and warned of more softness to come. The company’s outsize exposure to international markets has left it unusually vulnerable to a strong dollar.
The company’s technicals are suffering as a result.
Shares failed to break resistance at the 50-day moving average at the beginning of October and then couldn’t find support at the 200-day MA a few weeks later. CL stock is now rattling around trying to fill in a bottom, but a recent death cross puts further downside pressure on the name. Neither the RSI or MACD are indicative of a reversal to trend.
Lastly, CL historically underperforms the S&P 500 at this time of year. It has gained an average of just 0.7% in December over the long-term.
Blue-Chip Stocks to Sell for December: HCA Holdings (HCA)
As much as drug wholesalers love the idea that a Trump administration will dismantle Obamacare, hospital companies like HCA Holdings Inc (NYSE:HCA) hate it.
The last thing they want is fewer customers and more debt.
That’s why HCA’s chart collapsed after the election, and why shares are set for sideways trading at best. HCA collapsed below its 50- and 200-day moving averages in short order and then made a death cross. Other technicals indicators point to yet more downward momentum ahead.
As for seasonal trading, forget it. HCA Holdings has lost an average of 1.4% in December over the last 10 years. When everyone else is partying, HCA is getting tangled in a ball of tinsel.
Anyone betting on HCA for the longer term has to come to grips with the fact that political uncertainty is going to remain a stiff headwind for quite some time.
Blue-Chip Stocks to Sell for December: Pfizer (PFE)
Pfizer Inc. (NYSE:PFE) doesn’t have the worst chart in the world, and its seasonality is more lackluster than disastrous.
But there’s still too much evidence pointing to shares having a disappointing December.
With an average gain of 1.2% over the last 10 years, PFE has delivered solid if underperforming price appreciation. Don’t be surprised if this year delivers more of the same.
Pfizer stock crashed down through its 200-day moving average a month ago on its way to a seven-month low. You can thank a quarterly earnings miss, as well as Pfizer abandoning development of cholesterol drug bococizumab.
The outcome of the presidential election gave PFE a boost, but it didn’t last long. Shares essentially failed to break out above the 50- and 200-day MAs, then started wallowing in light of a death cross.
The stock is looking a bit more frisky of late, but that won’t matter if it can’t break resistance at those key levels at some point soon.
Blue-Chip Stocks to Sell for December: Philip Morris (PM)
The market usually sours on Philip Morris International Inc. (NYSE:PM) as the old year gives way to the new. Shares have on average have an underwhelming price gain of just 0.3% in December after the last half-decade.
And January typically delivers a loss of 3.5%.
PM’s chart suggests more of the same this time around the calendar. Shares found reliable support at their 200-day moving average over the course of October, but after a failed attempt to break resistance at the 50-day they fell off a cliff.
Shares bounced off levels not seen since winter, but a death cross and negative trend indicators don’t exactly fill bulls with hope in the near term.
The negative sentiment driving the downside won’t have a chance of lifting until the market knows whether Reynolds American, Inc. (NYSE:RAI) will essentially merge with British American Tobacco PLC (ADR) (NYSEMKT:BTI). That could take a while, and there’s a good chance investors won’t like the answer.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.