While there’s only a modest degree of empirical evidence to support the whole “sell in May and go away” adage, this time around it might be wide advice to heed. The market remains unable to follow through on near-term bullish efforts, and despite a reasonably assuring beginning to the first quarter’s earnings season, traders have largely responded to those reports in a bearish manner.
Certainly not all stocks are fighting a losing battle here. Indeed, there are some that will manage to move higher in May, and continue higher through summer.
There are more than a handful of stocks, however, in a position to perform poorly even if the broad market holds up, and in a position to completely implode should stocks as a whole finally dish out the overdue correction.
Here’s a run-down of the top 10 stocks to sell sooner than later, steering clear at least until a decisive bottom has been made.
Stocks to Sell: Netflix (NFLX)
It has admittedly been a bad idea to bet against Netflix, Inc. (NASDAQ:NFLX) at any point for the past several years. Being a fast-growing market leader, despite a lack of positive cash flow, has been enough to keep the bulls on board. Indeed, the bulls have arguably been overzealous, keeping NFLX stock overbought and ripe for a profit-taking move for the better part of the past several months.
On Monday, Netflix made an announcement that rattled the market just enough to plant a seed of doubt. That is, not only is it taking on more debt — $1.9 billion worth of all — to finance the acquisition or production of more video content, it’s issuing those bonds as high-yield “junk bonds.”
The higher-than-market-average coupon isn’t necessarily a sign of doomsday. But, with higher borrowing rates, an already-tough cash burn pace could get even worse, crimping operating earnings.
Stocks to Sell: Rockwell Collins (COL)
In many cases, when analysts collectively agree a stock is a disaster, it’s almost a bullish clarion call. In the case of Rockwell Collins, Inc. (NYSE:COL), though its average rating of lower than a “hold” (which is essentially a “sell” among bullishly biased analysts) is grim, they may well be right. These pros have just needed time for their doubts to pan out.
They may be panning out right now.
After months of sideways action that has defined and tested a technical floor around $131.65, COL shares are once again testing that floor, and will shortly thereafter test the 200-day moving average line. Only this time, there’s a growing amount of selling volume on the market’s down days.
If the floor around $131 snaps, there’s not much left to halt a selloff until we get near the $100 area.
Stocks to Banish: Pier 1 Imports (PIR)
Last week, it looked like shares of home-goods retailer Pier 1 Imports Inc (NYSE:PIR) might finally pull out of a long-term downtrend. But, no such luck. In fact, PIR stock plunged 13% in one day following a quarterly earnings miss and a suspension of its dividend.
A stumble of that size would often be a buying opportunity. This time might be a little different though. Raymond James analyst Budd Bugatch kicked PIR shares while they were down, downgrading Pier 1 on concerns that any turnaround work could take a long, long time. After the one-two punch combination, Pier 1 Imports isn’t being seen as a name in any kind of shape to push itself up and off the mat.
Stocks to Banish: Estee Lauder (EL)
Estee Lauder Companies Inc (NYSE:EL) shares have been a beast over the course of the past year, plain and simple. EL stock is up 71% since this point in 2017, and still appears to be going strong.
As they say though, expect it when you least expect it. EL shares are well overbought and ripe for some profit-taking. If you look closely at volume-based indicators, you can see the sellers are slowly but surely coming out of the woodwork, even though the stock itself doesn’t yet appear to be taking on water.
The valuation argument certainly starts to weaken at current levels. Even with this year’s expected earnings growth of 25%, the forward-looking P/E of 30 is pushing the limits of what’s sustainable.
Stocks to Banish: Qorvo (QRVO)
Qorvo Inc (NASDAQ:QRVO) is anything but a household name. The company — a relatively small $8.7 billion outfit — makes wireless broadband communications technologies and related chips, but nothing the average consumer would fully recognize (even if they were using the company’s tech).
It’s clearly not a bad business to be in. Indeed, the company is waist-deep into 5G and the Internet of Things, which are undoubtedly the future. That’s a fiercely competitive arena though, with a clouded future that’s not willing to give the relatively small player much benefit of the doubt.
Also weighing in on investors’ minds is a projected sales decline of 2% this year in an environment where Qorvo should be thriving. A close look at the chart reveals short-lived rally efforts and lots of volume behind the stock’s pullbacks.
Stocks to Banish: Ventas (VTR)
Part of the reason healthcare facility REIT Ventas, Inc. (NYSE:VTR) has earned a spot on a list of stocks to sell is due to circumstances beyond its control. Bond yields are on the rise, and when that happens, dividend-paying stocks — which are like bonds in many respects — are pressured lower to make their yields more reflective of prevailing market rates.
Perhaps the bigger part of the reason VTR is stuck in a downtrend, however, is the fact that funds from operations have not only been lackluster of late, but they’re believed to have fallen in the first quarter. Some of that headwind stems from an abundance of supply of senior care facilities that’s keeping pricing power to a minimum.
Those aren’t issues that get resolved in just one quarter.
Stocks to Banish: Intel (INTC)
Sell Intel Corporation (NASDAQ:INTC)? Isn’t the company rekindling its former greatness? For that matter, isn’t INTC stock on a tear nobody wants to bail out of too soon?
The answer to both question is “not quite.”
Yes, Intel is developing a next generation of processors that will take computers to the proverbial next level, and PC sales are somewhat on the mend. This is still a mobile world though, and while the company has made some in-roads to that market, it’s still seen as something of an outsider. In the meantime, Apple Inc. (NASDAQ:AAPL) will stop putting Intel processors in Mac computers by 2020, while Microsoft Corporation (NASDAQ:MSFT) and Qualcomm, Inc. (NASDAQ:QCOM) are tinkering with alternatives to Intel’s CPUs.
It leaves one wondering if there’s anything powering the rally besides hope.
Stocks to Banish: Whirlpool (WHR)
Whirlpool Corporation (NYSE:WHR) still makes some of the best appliances on the market. It just doesn’t sell enough of them at a strong enough price to satisfy investors. Last quarter’s top and bottom lines both fell short of estimates. Worse, the company’s guidance for the full year suggests analysts had been a bit too optimistic about the company’s foreseeable future.
It was the sixth earnings miss for the past seven quarters.
Those six earnings shortfalls, by the way, are a big part of the reason WHR shares haven’t made any net progress since 2014. Shareholders are becoming increasingly restless though.
Stocks to Banish: Oracle (ORCL)
For a short while it almost looked as if Oracle Corporation (NYSE:ORCL) shares would recover from last month’s post-earnings plunge. The stock tumbled in a big way, proceeded to new multimonth lows, but started to log higher highs again in April.
That bounce effort has petered out though, yielding to bearish pressures again. The selling has also been on slightly higher volume than the advance was, suggesting there was never really a great deal of faith in the feeble recovery move.
There’s good reason for such doubt. As much lip service as the company’s co-CEOs have given Oracle as a top-notch cloud computing player, Dana Blankenhorn is absolutely right when he notes “Clouds are an extension of this ongoing battle. Clouds are built on open source software, on standard hardware, and they share the benefits of a high, rising platform with customers and other vendors. Oracle, by contrast, is an entirely proprietary system. Customers pay Oracle for its benefits, but they remain customers. Critics dub Oracle Cloud a fake cloud.”
It’s a nuance that makes Oracle’s platform a very tough sell to would-be customers.
Stocks to Banish: Tesla (TSLA)
Last but not least, add Tesla Inc (NASDAQ:TSLA) to your list of stocks to sell before April turns into May.
Yes, the company is still the gold standard of the electric vehicle world, and yes, the company probably broke production records last quarter in terms of the total number of cars it delivered.
That’s not the metric by which investors are going to judge the company for the foreseeable future though. Shareholders want to see above all else that Model 3 production is going to reach anywhere near the pace of 5,000 per week that CEO Elon Musk predicted would be the case by late this year. In the meantime (and unsurprisingly), Tesla has once run into Model 3 production problems that have forced Musk to start 24/7 operations … a seemingly desperate move that he has not employed before.
With Musk’s penchant for overpromising and underdelivering, the investors have grown weary enough to start questioning their usual bullishness. The downtrend since last year is picking up steam again.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.