There it is. Wednesday’s market-wide loss was the worst day stocks have collectively suffered in the past eight months, setting the stage for more downside and a slew of stocks to sell.
Reports that President Donald Trump asked now-former FBI Director James Comey to quell his investigation of now-former National Security Adviser Michael Flynn’s potential ties with Russia were cited as the cause for the selloff.
But a correction has been brewing for a while — the headlines were just the catalyst. (If nothing else, the calendar could be a culprit in itself.)
Whatever the reason, the steep losses are just scary enough to get traders in the mood for some profit-taking. And the market’s biggest and best recent winners also top the list of stocks to sell before a widespread pullback pulls the rug out from underneath these names.
Here’s a look at the five stocks most vulnerable to a broad-based correction.
Stocks to Sell: Netflix (NFLX)
Netflix, Inc. (NASDAQ:NFLX) is still the undisputed king of on-demand video, driving a steady and consistent gain over the course of the past year. The end result? NFLX shares are now up 75% since this point in 2016.
That’s a tough act to follow, especially now that it’s starting to sense a little saturation with its overseas business. There’s another more specific reason, however, that you may want to add Netflix to a list of stocks to sell before things get uglier.
That is, it’s testing the impact of higher subscription prices in Australia. The buzz is that it could be something Netflix also has planned for its key U.S. market.
Though Netflix has raised prices before, the backlash was more bark than bite. That was before consumers had an array of choices, though. Other on-demand options are readily available now, and Netflix may be surprised how willing consumers are to cancel their subscriptions.
That’s not a risk many NFLX shareholders can afford to take anyway.
Stocks to Sell: Activision Blizzard (ATVI)
Activision Blizzard, Inc. (NASDAQ:ATVI) has been nothing less than heroic this year.
Kicking off 2017 on a bullish foot following a lackluster end to 2016, the bulls kicked ATVI stock into a higher gear in mid-February following an outstanding earnings report.
All told, ATVI jumped 19% on Feb. 10 thanks to a 49% improvement in year-over-year revenue. After a brief lull, the bulls piled on again, taking the year-to-date gain to 57% as of Tuesday’s close. That, however, arguably overstated Activision’s prospects.
Throw in the fact that the company’s share of the nascent eSports market is starting to contract now that interest in Overwatch is waning, and what you’ve got is more than enough reason for the pendulum to start moving in a bearish direction again.
Stocks to Sell: Micron Technology (MU)
Add Micron Technology, Inc. (NASDAQ:MU) to your list of stocks to sell sooner than later as well.
Although it’s the second-best performer within the S&P 500 Index for the past 12 months, the 200% rally for that timeframe also makes it a prime profit-taking target now that the market’s undertow is in question.
Micron shares rallied on an explosive increase in the price of computer memory, as well as forecasts that NAND memory could spike another 10% this year.
Goldman Sachs, however, thinks the bulk of the supply-crunch has already run its course and has been fully priced into MU shares. Goldman downgraded the stock earlier this month, to a “neutral” rating, and reduced the stock’s price target to $30 from $32.
Stocks to Sell: Skyworks Solutions (SWKS)
Skyworks Solutions Inc (NASDAQ:SWKS) isn’t a household name, though it’s possible there’s something in your house that was partially manufactured by the semiconductor company.
It’s one of the component suppliers for the Apple Inc. (NASDAQ:AAPL) iPhone, and for better or worse, it’s linked to the success or failure of Apple. While Apple has been one of the year’s best performers so far, the likelihood that its next iPhone could be priced at an unmarketable $1000 (or more) could end up being viewed as a key liability.
Moreover, Apple “frenemy” Qualcomm, Inc. (NASDAQ:QCOM) recently filed a lawsuit against four of Apple’s iPhone manufacturers, alleging a breach of contract. While Skyworks Solutions wasn’t one of the four companies named in the suit, the fact that Apple’s legal woes are now spreading to its partners is anything but reassuring.
All of a sudden, the 40% gain SWKS mustered so far this year (until today’s correction) looks very vulnerable.
Stocks to Sell: Vertex Pharmaceuticals (VRTX)
Last but not least, owners of Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) may want to lock in their sizable gains while they can.
It’s the number-one winner in the S&P 500 so far this year, boasting a well-deserved 60% since the end of 2016 largely thanks to a 20% jump it made on March 29. That’s when the company announced its cystic fibrosis drug Kalydeco performed very well in late-stage testing. Just for the record though, VRTX was rallying before the big move and has continued its climb after the fact.
There’s only so much mileage a company can get from one event, however, and all the potential upside of Kalydeco is already priced into the stock. In fact, with the huge gap from March 29 still unfilled, VRTX is apt to be one of the first names traders pull the plug on should the market-wide situation worsen.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.