Big financials are what is helping power the market past the 23,000 historic top on the Dow Jones Industrial Average.
Now, 23,000 is simply a symbolic number, but the market relies on psychology for much of its movements. And given the fact that the market is supposed to be looking about six months ahead, it’s a bullish sign that the big market averages keep hitting highs.
But that doesn’t mean all boats are lifted on this tide. As a matter of fact, as some companies gain strength, it’s crucial to look at the companies that are struggling in such a robust market.
These stragglers either oversold or they’re just not making it. These seven crumbling financial stocks to sell now are, of course, the latter.
Don’t think all stocks that are struggling are just undiscovered bargains. Some are truly rolling over and may not come back.
Financial Stocks to Sell: Maiden Holdings (MHLD)
Maiden Holdings, Ltd. (NASDAQ:MHLD) is a Bermuda-based reinsurer with clients in the U.S., Europe and Bermuda.
A reinsurance company is basically an insurance company for insurance companies. An insurance company will either reinsure a pool of similar policies (like homes) or will reinsure a large property like a tanker or office building.
If something happens — say a hurricane — and a claim is filed, the insurance company files a claim with the reinsurer.
Bermuda is home to a large portion of reinsurers due to favorable tax reasons, which also is a bone of contention for U.S. and European competitors.
Given the move toward tax reform and the tough hurricane season we just experienced in the U.S. and Ireland, MHLD has more lows to put in before it sees any upside. Don’t let the 6.8% dividend yield tempt you.
Financial Stocks to Sell: Arlington Asset Investment (AI)
Arlington Asset Investment Corp (NYSE:AI) specializes in managing a portfolio of mortgage-back securities (MBS).
And this would seem to be a great sector to be in now that the Federal Reserve is planning to unwind its massive holdings of MBS. However, the U.S. economy may have low unemployment and some indicators are showing a turnaround, but the heady days for MBS have yet to return.
That’s reflected in AI’s Q2 numbers, where its portfolio was actually underwater. Add to that an issuance of stock — usually to raise capital since the portfolio isn’t accomplishing that — which dilutes shareholder value, and you have a stock that is showing more problems than promise.
Yes, it’s delivering a massive 17% dividend yield, but it has racked up 14% losses year to date. The risk outweighs the rewards.
Financial Stocks to Sell: Pra Group (PRAA)
Pra Group Inc (NASDAQ:PRAA) specializes in managing portfolios of non-performing loans.
Basically that means PRAA is a debt collection agency. Most of the loans we are talking about are unsecured loans like credit cards where the issuing financial institution is no longer interested in holding the debt on its books and sells it to a collection agency, that will get a percentage of the outstanding amount.
This was a very good business after the crash in 2008, as consumers were scrambling to keep their heads above water and keep their credit intact. But the problem is, there was so much easy money out there from lenders that much of this debt is unrecoverable.
On the other side, since the crash, fewer people are interested in adding debt, so there’s less for PRAA to do. Either way, it’s not a good time. And that’s why the stock has dropped nearly 30% year to date and that loss is accelerating.
Financial Stocks to Sell:Triangle Capital (TCAP)
Triangle Capital Corporation (NADAQ:TCAP) is a business development corporation (BDC) that specializes in investing in small to medium-sized companies. Its investments range from $5 million to $50 million.
BDCs are known for their dividends since they have similar qualities to real estate investment trusts and limited partnerships. They deliver quarterly dividends that are “passed through” the BDC to the shareholders. Those dividends are essentially net investment income and net realized capital gains of the BDC.
TCAP’s nearly 14% dividend is certainly attractive. Unfortunately, the stock is off more than double that. And double-digit dividends are historically very tough to maintain, since it reflects some fundamental issues with the company, as reflected by its stock price.
Just this morning, Zacks lowered its guidance on TCAP to “sell,” and other firms are reducing their positions in TCAP, which certainly won’t help.
Financial Stocks to Sell:Medallion Financial (MFIN)
Medallion Financial Corp (NASDAQ:MFIN) used to be a great income stock. The entire business was built around taxi cab medallions in New York City.
These medallions were necessary to drive a taxi in the city. Owners of the medallions could lease their cars to other drivers, or use the medallions as collateral for loans, etc.
And MFIN built itself into a medallion-based bank. Medallions in NYC and other cities used to be worth millions of dollars.
Today, with the rise of Lyft and Uber, not so much. Four years ago, a medallion was worth about $1 million. Last year, one sold for $240,000.
And so goes the fate of MFIN. Plus, MFIN has lent out money to people that now have an asset worth a fraction of what is was once worth — a very dangerous position to be in.
Financial Stocks to Sell: United Insurance (UIHC)
United Insurance Holdings Corp (NASDAQ:UIHC) is a property and casualty (P&C) insurance company that specializes in homeowners insurance in high-risk states. It operates primarily in Connecticut, Florida, Georgia, Hawaii, Louisiana, Massachusetts, New Jersey, North Carolina, Rhode Island, South Carolina and Texas.
Most of these states are the ones that take the brunt of most hurricanes and Nor’easters.
Given the fact that it specializes in dealing with these areas, you would assume that big storms like Harvey, Irma and Maria wouldn’t be much of an issue. And that is somewhat true, since UIHC is actually up 8% year to date.
But the Q3 numbers have yet to hit and if the toll is bad for the broader industry, UIHC is going to be get caught in the undertow.
It’s not that there’s a huge amount of risk here, but the risk that does exist far outweighs the reward at this point.
Financial Stocks to Sell:AmTrust (AFSI)
AmTrust Financial Services Inc (NASDAQ:AFSI) is a P&C insurance company that specializes in specialty risk, small commercial business and warranty insurance sectors as its core markets.
Specialty risk and small commercial business are the two concerns at this point. Specialty risk is underwriting for businesses that are more complicated to underwrite given their unique character.
For example, sectors that tend to be under specialty risk are agriculture, construction, trucking, aviation, crop insurance and livestock.
If you think calculating losses for a home or business is complicated after a major disaster, imagine the effort it takes to calculate crop damage or loss to logistics firms.
AFSI stock is off nearly 50% year to date, so the problems didn’t start with hurricane season, it has only made them worse. And its 4.8% dividend does not make AFSI any more tempting here.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.