We’re now at the midpoint of the year, and so far, the market’s given investors plenty to cheer. Not only are stocks fresh off of all-time record highs, the bigger bullish undertow is still in motion. But if you’re not poring through your portfolio looking for stocks to sell, you could be in for a bout of underperformance.
Not only is July not typically a red-hot month for the market (it averages a 1% gain), more than few stocks have rallied a little too far, too fast, and are ripe for a wave of profit-taking.
As they say, nothing last forever.
They also say to expect it when you least expect it, so just because the rhetoric about some of the investors’ current favorites is still encouraging, that may only be a case of the media chasing momentum.
With that as the backdrop, here’s a quick look at the market’s top stocks to sell before July gets started in earnest. Each of these picks is either technically overbought, fundamentally overvalued or both, which makes them ripe for unloading.
In no certain order, here are this month’s biggest potential losers.
Stocks to Sell for July: Disney (DIS)
Oddly enough, although July is the heart of the vacation period, it’s generally not a great month for Walt Disney Co (NYSE:DIS). In the average year, Disney shares lose about half a percent in the month, then continue to slide lower through late August.
Considering Disney shares are now down year-to-date, it’s tempting to view Walt Disney as an undervalued stock. But that’s not how it works. More often than not, when Disney is losing ground at the mid-point of the year, the selling effort really heats up in the third quarter.
While Disney’s movies and theme parks are still doing fine, its television business — and its ESPN division in particular — continue to deteriorate. Nielsen said that the sports channel lost another 3.8% of its subscribers in May, which is a depressing par for the course.
Stocks to Sell for July: Hasbro (HAS)
This year has been a pretty good one for Hasbro, Inc. (NASDAQ:HAS) shareholders. HAS is up 41% for 2017-to-date, riding a wave of success stemming from successful licensing deals along with traction in digital games. See, Hasbro is the name behind Star Wars, Frozen and Marvel toys, all of which are potent movie franchisees.
Thing is, even in a good year, Hasbro stock tends to stall in July and remain stagnant through August … especially at a trailing P/E of nearly 25 and projected earnings growth of only 10% this year and only 5% next year.
Hasbro might just be a sell (or an options short) for quicker traders, because things aren’t all bad for the buy-and-hold crowd.
This company’s fortunes do tend to change for the batter again later in the year, in October, as all the holiday toy-shopping starts to take shape and the year’s biggest movies are unleashed for the year-end movie-going season.
That three-month stretch of down-time does pose an unnecessary risk — and wastes time — should we not get the unusual year-end hurrah. But that seems an unlikely outcome this year, with a new Star Wars flick and Spider-Man: Homecoming in the cards for 2017.
Never say never, though. If nothing changes for the worse between now and then, you can just wade back in after September arrives.
Stocks to Sell for July: Philip Morris International (PM)
Cigarette stocks like Philip Morris International Inc. (NYSE:PM) are a funny breed these days. They’re all fighting a losing battle as smoking-cessation efforts take hold.
Yet somehow these companies always manage to pull a rabbit out of their heat to postpone their doom. Most recently, the industry has embraced e-cigarettes as a new path to growth.
That’s the crux of the reason PM stock has managed to gain 33% so far this year (qualifying it as one of the top-20 large-cap performers, by the way). Philip Morris has managed to convince the market all year long that its vaporizing platforms will not only get the FDA’s nod of approval, but will be viewed as a premium must-have by the market.
Maybe it will. But it probably won’t happen before a wave of profit-taking sets in on PM.
It’s better to be out before the rest of the crowd decides to do the same.
Stocks to Sell for July: Starbucks (SBUX)
For whatever reason, Starbucks Corporation (NASDAQ:SBUX) only has two kinds of Julys: not good, and really bad.
On average, it loses 1%, and when it’s a losing year for SBUX shares, the stock typically loses 6% if its value for the month in question.
The downtrend Starbucks has developed in June is already suspicious in itself, made even more suspicious by the fact that shares started the year out on such a strong foot.
A bearish thesis on Starbucks is the minority opinion at this time. It recently partnered with Snap Kitchen to expand its food offerings, and as Keybanc analyst Chris O’Cull recently argued, the market is ignoring all the good things the company is doing in Asia. The bullish case isn’t a bad one.
However, a closer look at all these efforts to rekindle its growth pace of yesteryear have all been done before and/or are already being done. At this point, the work is coming across as a little bit desperate.
The market may not be ignoring what’s going on in Asia. The market is simply saying what’s going on in Asia doesn’t matter.
Stocks to Sell for July: Nvidia (NVDA)
What? Sell Nvidia Corporation (NASDAQ:NVDA)?
It’s not only been one of the market’s most prolific stories of 2017 thus far, but NVDA stock has been one of the market’s biggest winners. Shares are up 44% year-to-date, largely thanks to the advent of artificial intelligence computing.
As it just so happens, the graphics processing technology that Nvidia is so well-known for is the ideal platform to perform the deep number-crunching necessary to make AI work.
There are limits, though. And at a trailing P/E of 52 and a forward-looking one of 44, we’re arguably at those limits. This year’s projected earnings growth of 20% is respectable, but it doesn’t quite justify the stock’s present valuation.
The kicker: Even in a “good” year, July isn’t kind to NVDA stock. On average, it loses nearly 6% of its value over the course of the month ahead, and it’s setting up for a repeat move now, qualifying it as one of the top stocks to sell as soon as reasonably possible.
Stocks to Sell for July: Anthem (ANTM)
This is a tricky time to handicap health insurers like Anthem Inc (NYSE:ANTM).
ANTM is up 34% year-to-date, not because the company is winning new business, but largely because it has decided to pull out of some Affordable Care Act markets that were costing the insurer profits rather than adding to the bottom line.
That bullishness may be premature, and overextended, however. While the scale-out superficially makes sense, the future of the nation’s health insurance remains alarmingly unclear.
It’s still too soon to bet on Anthem here. Once investors start to realize this, the rally that ANTM has mustered could be relatively easy to reverse, making it one of the best stocks to sell in the very near future.
Stocks to Sell for July: Bank of America (BAC)
By almost all accounts, Bank of America Corp (NYSE:BAC) is a perfect investment. It’s starting to pass its stress tests on a regular basis now (including its most recent one), allowing it to return more capital to shareholders. And CEO Brian Moynihan has made cost-cutting his personal mission, aiming to cull $5 billion in annual spending by the end of next year. He has already made good progress to that end.
So why is BofA on a list of stocks to sell sooner than later?
Rational or not, BAC is struggling this year. Even if they reverse their fortune, July usually isn’t a great month for the stock. August is OK, but September is almost always miserable.
Working against all the big banks here isn’t sinking interest rates; rates are actually rising. But the perception is that the Federal Reserve is going to scale back its seemingly aggressive rate-hike plans for the year, which puts an unexpected roadblock in front of Bank of America’s potential growth.
Stocks to Sell for July: Kroger (KR)
Last but not least, on the off-chance you just woke up from a long-term cryogenic sleep and haven’t heard yet, e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) recently announced it would be acquiring Whole Foods Market, Inc. (NASDAQ:WFM).
The threat to Kroger Co (NYSE:KR) is clear — Amazon’s dominating presence and deep pockets can and likely will chip away at Kroger’s market share. That’s why KR shares are down 25% since the news was unveiled.
In many regards, that selloff might adequately reflect the full extent of the risk of Amazon’s entry into the grocery market; predictions of Kroger’s doom are a tad over-the-top. Fear and a bunch of other emotions are still running rampant though, and as the consummation of the Amazon/Whole Foods deal materializes, the sellers very well could keep pounding on KR.
Better to get out of the way and let them drive it to a complete capitulation than try to catch — or hold onto — what’s very likely still a falling knife, earning Kroger a spot on the list of stocks to sell headed into July.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.