U.S. stocks have been under some pressure in March. While the markets are enjoying a brief recovery at the moment, they’ve largely been wilting away from the highs set at the start of the month as hopes of an aggressive pro-growth legislative push by President Trump and Republicans in Congress have dimmed.
Failure to bring “Trumpcare” reforms on healthcare to a vote in the House revealed not only steadfast opposition to anything Trump wants to do from Democrats, but even resistance from conservative members of his own party. Any pivot to tax reform will equally if not even more difficult amid tough choices on spending cuts, new border taxes, and increased debt levels.
The problem, then: Both GDP growth and corporate earnings growth have been tepid, and a lot of high expectations surrounding Trump were baked into stock prices in recent months. Valuations are stretched.
We are approaching the “Sell in May” doldrums, but investors might not want to wait that long. April could be the last best chance to sell weak issues and raise some cash as we head into what is seasonally the weakest time of the year. More aggressive traders should take notice, too, as opportunities for bearish options plays and pure short selling will start to pile up.
With that in mind, here are five blue-chip stocks to sell, short or at least hedge against in April:
Blue-Chip Stocks to Sell in April: Nike (NKE)
Nike Inc (NYSE:NKE) shares are reversing from resistance near $59-$60 — a level that turns the stock lower last August — and look ready to cross below both their 50-day and 200-day moving averages amid rising competitive threats and lukewarm retail sales activity across the U.S. economy.
Nike, of course, is reeling from a so-so third-quarter earnings report that failed to impress just about anyone who saw it.
While sales grew 5% year-over-year, revenues of $8.43 billion were shy of expectations for $8.47 billion. That put a cloud over a big earnings beat of 68 cents per share against estimates for just 53 cents. So did a 140-basis-point contraction in gross margins to 44.5%.
Worse were so-called “futures orders,” which NKE will exclude from its reports going forward. Still, this quarter’s metric came to a 1% decline, while Wall Street was hoping for a 3.4% increase.
It doesn’t help that rival Adidas AG (ADR) (OTCMKTS:ADDYY) is clawing away market share, including in North America. Nor does it help that consumer discretionary stocks like Nike tend to lose momentum in early April, and don’t regain it until mid-October.
NKE is an iconic company and has plenty of financial resources, but it’s in an ugly funk right now that could last for some time. Get rid of it.
Blue-Chip Stocks to Sell in April: Caterpillar (CAT)
Caterpillar Inc. (NYSE:CAT) shares gapped higher after Election Day and tested resistance near the $100-a-share level multiple times in recent months before now fading lower. Overhead resistance is formidable, with shares topping near $100 back in the summer of 2014 before melting lower in sympathy with oil prices.
The big thing haunting Caterpillar right now is, of course, the raid of its corporate offices in Illinois in early March. Federal agencies were collecting documents and electronic information, and suspicions that the move was related to allegations of hiding billions of dollar in Swiss subsidiaries were later confirmed in a government report. As of right now, Caterpillar hasn’t been charged, but uncertainty will hang over CAT stock until we see something concrete — one way or the other.
A small positive development — a 1% decrease in February retail sales, its slowest decline in just more than four years — hasn’t done much to spruce up the stock.
Industrial and materials stocks like CAT tend to lose momentum in early May and not get a tailwind again until late October/early November.
Caterpillar is woefully short on positive catalysts right now. And its 3% dividend isn’t enough reason to stick around.
Blue-Chip Stocks to Sell in April: Gap (GPS)
Gap Inc (NYSE:GPS) shares have been languishing in a sideways trading range since last summer, with occasional flurries to the upside and the downside, as management continues to struggle with turnarounds for its Banana Republic and eponymous Gap brand.
New talent is being brought in: Former Gymboree CEO Mark Breitbard is the new CEO of Banana Republic, and he has experience with the company — in 2009 and 2010 as the chief merchandising and creative officer of Old Navy, another Gap brand.
Also, GPS no longer reports monthly sales numbers … which is probably a good thing since the news is rarely positive these days.
Still, Gap faces a number of headwinds, not the least of which is poor seasonality for consumer discretionary and retail stocks alike. Again, both groups tend to lose strength around mid-April and not perk up again until October — and that’s been a mostly faithful trend for the past two decades.
Gap’s next earnings report is May 18 after the bell, where analysts will want to see profits of 29 cents per share on revenues of $3.4 billion.
Blue-Chip Stocks to Sell in April: General Mills (GIS)
General Mills, Inc. (NYSE:GIS) shares have dropped down and out of a trading range going back to October, returning to early 2016 levels and representing an 18% decline from the highs set last summer.
It’s not getting any better anytime soon.
Stifel Nicolaus analysts just downgraded GIS stock from “buy” to “hold,” noting growing concern about the sales improvement at the company and margins. They also lowered their price target from $67 to $60.
That follows General Mills’ poor results on the earnings front. Sure, the company managed a slight earnings beat and reaffirmed its guidance … but investors were more focused on a 5.2% year-over-year decline in revenues. Now, the company’s next chance at redemption isn’t until June 29, where analysts will want to see earnings of 72 cents per share on revenues of $3.8 billion.
GIS is an exception among these stocks to sell in that seasonality actually favors it a bit, at least on the sector level; consumer staples tend to do well over the summer. However, cross-sector correlations are high at the moment, and the entire market is very overbought. So 2017 could be an exception.
Blue-Chip Stocks to Sell in April: Verizon (VZ)
Looking at seasonality, telecom stocks enjoy only a relatively short-lived burst of strength late in the fall, but otherwise, there’s not much there. That’s not good news for Verizon Communications Inc. (NYSE:VZ), which could use just about anything right now.
VZ shares are breaking down out of a two-month uptrend, and the technical picture is a mess: The 50-day moving average has crossed below and is moving away from the 200-day moving average. Watch for a retest of the November low near $45.50 as the company — and the wireless telecom industry in general — face increased competitive pressures as standard-of-quality metrics equalize and service providers are forced to compete on price again.
Verizon, as it was widely reported, started offering unlimited data plans again.
Of course, VZ is a long-term buy-and-hold part of many portfolios, and considering the fact the stock yields nearly 5% at current prices, it’s unlikely most investors will dump their shares.
Still, those looking to prune their portfolio and raise cash for more aggressive moves down the road would do well to at least take partial profits in VZ; or, if nothing else, use options plays to benefit from any near-term downside in the stumbling telecom.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers. Redeem by clicking the links above.