We’re entering the home stretch for 2016 market returns and that means tactical investors are running out of time to find stocks to sell for outperformance. After all, it’s been tough enough to generate gains this year as it is. Anything that has the potential to be a drag on short-term results probably has to go.
November is typically a good, but not great, month for stocks. Historically, the S&P 500 has generated an average price gain of 0.7% this month, according to data from Yardeni Research. With the broader market up just 3% for the year-to-date, tacticians are going to want every basis point of alpha they can get.
That’s why it’s imperative for anyone focusing on short-term performance to pare anything that has the potential to drag on returns. Even a stock that generates gains isn’t welcome if its return lags that of the benchmark index.
Although it’s nigh impossible to predict short-term price movements, there are some tools a tactical investor can use to improve his or her odds. Any stock whose chart is waving red flags deserves further investigation as a potential performance laggard. Stocks with a long history of poor seasonality are suspect, too. And, of course, fundamental weakness or negative news flow don’t bode well for gains.
After screening the S&P 500 for stocks exhibiting technical, poor seasonality and other red flags, we came up with a short list of stocks to sell for tactical outperformance this month. These were the ones that really stood out.
Stocks to Sell: Dr Pepper Snapple (DPS)
Average November Loss: 1.4%
Dr Pepper Snapple Group Inc. (NYSE:DPS) delivered generally good earnings news last week and yet DPS’ downtrend remains unbroken. Investors are fixated on flat volume growth in the non-carbonated beverage segment, among other concerns.
While it’s been reported that Dr Pepper Snapple would acquire Bai Brands — which makes a so-called “antioxidant-packed” health drink — Credit Suisse believes such a bid is unlikely due to Bai’s steep valuation.
Currently, DPS stock is laboring under the weight of the death cross it carved out in the middle of last month. That doesn’t bode well for any short-term gains.
The market also doesn’t like Dr Pepper Snapple much — at least not at this time of year. Over the past decade, DPS has an average November price loss of 1.4%, according to Thomson Reuters Stock Reports.
Stocks to Sell: General Electric (GE)
Average November Loss: 0.4%
The outlook for General Electric Company (NYSE:GE) stock in the longer-term hasn’t been this good in ages.
But the immediate future isn’t quite so bright.
GE stock gave back nearly 4% over the past month, which wasn’t helped by middling sentiment regarding its Baker Hughes Incorporated (NYSE:BHI) deal, which exposes General Electric shareholders to downside pressure should OPEC stubbornness continue weighing on the price of crude oil.
On a seasonal basis, GE stock simply has no mojo at this time of year. Shares have lost an average of 0.4% in November in the past 10 years.
The technical chart is likewise concerning. GE stock found reliable support at its 200-day moving average until it fell through in early September. Since then, it hasn’t managed any kind of challenge of resistance of the key level.
A recent death cross only adds to the downside momentum.
Stocks to Sell: Patterson Companies (PDCO)
Average November Loss: 0.5%
Patterson Companies, Inc. (NASDAQ:PDCO) is a distributor for the dental and veterinary markets, where intense competition is weighing on results. The resulting sales and margin weakness has made investors — and analysts — increasingly cautious on PDCO stock. Of the 13 analysts covering Patterson shares, 10 rate the stock a “hold” or “sell,” while only three give it a “buy” rating.
Indeed, competition seems to be a real problem for Patterson, with Zacks describing a “cutthroat competitive scenario” pitting PDCO against at least 15 dental product distributors, as well as hundreds of local distributors.
Sure, shares recently bounced off a 10-month low, which normally would be cause for a little excitement. But they’re about to hit a wall. Patterson shares have been trapped under their 50-day MA since mid-summer. Sure it could break through, but last week’s death cross makes a failed test at breaking resistance the more likely outcome.
Lastly, seasonality is not PDCO’s friend. Shares have lost an average of 0.5% in November over the past decade.
Stocks to Sell: Verizon (VZ)
Average November Loss: 0.6%
Verizon Communications Inc. (NYSE:VZ) stock has been in a relentless downtrend since mid-summer, and there’s nothing on the horizon to put a break on it. Revenue for the past three quarters have basically flirted with breakeven as the wireless and TV markets become saturated.
Indeed, VZ stock is down 17% since a 52-week high notched in early July, and the downside momentum is accelerating since shares made a death cross a few weeks ago. An average 10-year November price loss of 0.6% doesn’t help sentiment either.
Telecommunications stocks have generally fallen out of favor in the second half of 2016 as the market handicaps the odds of a rate hike. With a December move on interest rates looming, that pressure will continue.
Stocks to Sell: Vertex Pharma (VRTX)
Average November Loss: 5.3%
Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) has lost nearly 40% for the year-to-date, and it doesn’t look it’s going to get any help from technicals or seasonality soon.
It’s been a tough year for the biotechnology sector and even worse for an always volatile VRTX. Shares looked set for a recovery with the rest of the sector over the summer, but then Vertex rolled off the table.
Vertex stock is down 25% since its last peak and shares are now being crushed by the recent death cross. An earnings miss and poor seasonality — VRTX loses an average of 5.3% in November — is a recipe for a disappointing month ahead.
And let’s not forget that there’s this little event next week where Americans pick the next leader of the free world. That 38% YTD loss will look like peanuts after President Clinton takes price-gouging biotechs to task.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.