The market is doing well and we’re in the middle of a strong earnings season. At times like these, it’s easy for investors to get caught up and not notice when some of their investments are nearing the end. Some companies and stocks just won’t survive long term — at least not in there current forms.
Although we are in a bull market and the economy is doing very well, some companies’stocks are significantly overpriced, given the large structural obstacles they face. Of course, investors should sell the shares of such companies.
Here are 3 stocks to sell now:
Stocks to Sell Now: Amazon (AMZN)
As I’ve pointed out in the past, President Donald Trump strongly dislikes Amazon CEO Jeff Bezos and Amazon.com, Inc. (NASDAQ:AMZN). Not only does Trump loathe Amazon because of the political damage that The Washington Post (owned by Bezos) has done to him, but it’s become clear that the president is also very disturbed by the damage that Amazon is doing to the owners of America’s other large retail businesses.
Although I previously predicted that Trump would not be able to impact Amazon by charging it more to use the postal service or by denying it a multi-billion dollar Pentagon cloud contract, there are signs that he’s working against the company on both fronts. The president recently met with the co-CEO of Oracle Corporation (NYSE: ORCL) which is competing with Amazon for the Pentagon deal, and Trump appointed a task force to study the post office’s operations.
Meanwhile, Credit Suisse recently estimated that the Post Office could force Amazon to cough up an additional $1.8 billion per year — by raising its rates 15-20%. That’s not exactly pocket change, even for Amazon. The fact that Trump is taking the time to work on these projects suggests that I may have been wrong about his ability to harm Amazon.
Furthermore, he can still influence the outcome of the FTC and Iran sanctions investigations against the company that I referenced in my previous column. Finally, other major companies may not want to alienate the president by signing major cloud deals with Amazon going forward.
Stocks to Sell Now: Brinker (EAT)
Brinker International, Inc. (NYSE:EAT) — which owns restaurant chains Chili’s and Maggiano’s — faces two main obstacles. As Business Insider pointed out, “casual dining is in danger” as many more millennials choose to order food in rather than eat out. Meanwhile, fewer Americans are visiting malls — where a meaningful number of Chili’s and Maggiano’s restaurants are located.
These trends have clearly negatively impacted Brinker’s results already. In the company’s quarter ended in December 2017, comparable sales at its U.S. restaurants sank 1.6% versus the same period a year earlier. Moreover, traffic at Chili’s sank 4.4%. It’s true that the decline in traffic was not as steep as in previous quarters, but it appears that the company’s efforts to revitalize Chili’s — which included simplifying the menu at the restaurant — have not stemmed the significant traffic decline.
Despite the downbeat numbers and negative growth, Brinker stock is not that cheap. The trailing price to earnings ratio of Brinker stock is around 15, and its enterprise value to EBITDA ratio is over 7.
Stocks to Sell Now: Nordstrom (JWN)
Like Brinker stock, Nordstrom, Inc. (NYSE:JWN) stock is facing two major headwinds. Specifically, more people are buying their clothes online, and mall traffic is dropping at a rapid pace. It appears that many consumers who still shop at brick and mortar stores prefer to visit locations near their homes rather than traveling to malls which are likely to be further away.
Although bulls have made much of the fact that 26% of Nordstrom’s revenue is derived from online sales, the vast majority of its business still occurs in stores. And its results indicate that online competition is hurting its business. During the 2017 holiday season, the retailer’s comp sales inched up an anemic 1.2%, while comp sales of its full-price products increased just 1% year-over-year. As the Motley Fool pointed out, even if it reaches the “high end” of its 2018 EPS guidance, it “will post its third consecutive full-year EPS decline.”
Bulls may point to an offer by the Nordstrom family to take the retailer private for $50 per share, which was rejected by Nordstrom’s board. But the offer is only around 6% above the company’s current share price. And there is a significant chance that any subsequent offer will drop as Nordstrom stock falls further going forward and as interest rates increase.
Finally, Nordstrom stock is trading at a trailing price to earnings ratio of 18 and a price to book ratio of nearly 8, making it far from a bargain given the retailer’s weak growth trends and the tough headwinds it’s facing.
As of this writing, Larry Ramer did not own shares of any of the stocks mentioned.
