We’re halfway through the year at this point and while things aren’t looking awesome, they look pretty good.
Consumer spending continues to rise, inflation remains low and even the trade war hasn’t seeped into the economy too much.
So, why am I looking at seven F-rated stocks to sell for summer? Because all this balances on a pin.
There are signs the economy is slowing. Interest rates are low because the global economy isn’t moving. And that’s bad for financial stocks. Their margins get hurt when rates drop and if it’s not made up in volume, it’s bad news.
A weaker dollar also means energy prices fall. Even tensions with Iran can’t get oil over $60 a barrel. And a lingering or expanding trade war with China may soon start to show up more in the broader economy. It’s already hitting small businesses and farmers, but we don’t see it in the stock market yet.
That’s why it’s important to hold quality stocks and cull the weak. And there’s no better time than now, while the market is happy.
Schlumberger Ltd (SLB)
Schlumberger Ltd (NYSE:SLB) is the world’s largest oil and gas support company. It does everything from characterizing fields to supplying the drills and equipment for all manner of drilling and production operations.
It has been around since 1926, and has a $49 billion market cap, so it’s not a flash in the pan. But the stock is off 41% in the past 12 months, so its 5% dividend and strong reputation don’t mean much right now.
When the economy slows — not only in the U.S., but around the world — it means energy demand slows. And that means a reduction in exploration as well as a slowdown in production on operating wells.
SLB is a flagship company in the energy sector and it illustrates the cyclical nature of the energy market better than many stocks in the sector. The continued weakness is a much greater threat now than any upside potential.
FedEx (NYSE:FDX) is one of the world’s top logistics companies. And in the age of e-commerce, it should be a very good sector to be in.
Then why is the stock off 28% in the past year?
Well, as e-commerce accelerates, it means more companies jump in the game. Rising competition means it’s tougher to grow market share without hurting margins.
Then there’s the global economy. The China trade war is starting to affect FDX’s business and it’s helping Chinese rivals grow their market base while U.S. firms are minimized.
Finally, there are the big e-commerce companies, such as Amazon (NASDAQ:AMZN). Even the disruptor, AMZN, is now looking to build out its own logistics company so it can better control its delivery services and improve its cost structures.
ArcelorMittal ADR (NYSE:MT) is the top global steel producer with strategic operations around the world. It also produces coal for energy and industry.
When you’re a global player, it diversifies risk to a certain extent, unless the global economy is in a tough spot. Or, like what’s happening now, major global markets are going through separate issues.
The U.S. has adopted tariffs as its trade weapons of choice, so steel tariffs in NAFTA countries has hampered trade there. In Europe, MT has closed numerous plants because demand is low across the region as the economy limps along and the Brexit is still an open wound.
In Asia, the China-U.S. trade war is affecting MT, since its China sales have slowed.
Simply put, demand is down and even where there is a market, it’s hard to sell at decent prices. It’s no surprise it’s off 38% in the past year and more downside is a distinct possibility.
CenturyLink Inc (NYSE:CTL) is a U.S. telecom that operates in smaller markets and focuses on consumer and business phone, VPN and similar communications options.
It is isolated from any trade war issues and has a bountiful 8.6% dividend.
So, what’s the problem?
Well, one of its biggest problems is because it operates outside dense areas when the big telecoms and cable firms operate, it doesn’t have the kind of customer density to generate a lot of cash. That cash is usually used to upgrade copper or fiber optic cable for up-selling customers.
And where it does compete with the bigger players, its services can’t match the power or variety at competitive prices. In the age of mobility, it’s working with an antiquated model that only works because its customer base has few options.
Off more than 37% over the past 12 months, its big yield matters little.
Teva Pharmaceuticals (TEVA)
Teva Pharmaceuticals (NYSE:TEVA) has had a rough go of it over the past few years. And things aren’t getting much better.
The Israel-based pharma company was one of the world’s leading generic drug makers, with its biggest business in the U.S. But that business began to slide in 2016 as competitors moved into the space.
Its CEO at the time seemed to be asleep at the wheel and by the time the company moved to right the ship, it was almost too late. By 2017, a new CEO was brought in and immediately cut $3 billion in costs — a third of its current market cap — and 1,350 workers in Israel.
And that has barely staunched the bleeding. Now, its exposure to opioid lawsuits puts it in even more danger of paying out significant sums.
The stock is off 82% in the past three years, 62% in the past year and more than 40% year-to-date. Its once-generous dividend is non-existent.
Schneider National (SNDR)
Schneider National (NYSE:SNDR) is a decent-sized trucking, intermodal and logistics company that has been around since 1935, based out of Green Bay, Wisconsin.
Dow Theory is a classic market view that basically states that you can tell the broad trend in the markets by following the relationship of industrial stocks to transportation stocks.
If the transports are strong, it indicates that goods are leaving factories for customers that are demanding more goods. If the transports are weak and industrials are strong, it means demand is weakening and industrials are sitting on inventory.
We’re seeing the latter play out today. SNDR is down just 2.7% YTD, but 33% in the past 12 months. The trade war with China will not help, nor will a weakening economy.
Golar LNG (GLNG)
Golar LNG Ltd (NASDAQ:GLNG) is an liquefied natural gas (LNG) shipping company.
This should be a golden age for LNG companies shipping out of the U.S. to energy-hungry countries that are willing to pay multiples for LNG rather than the domestic U.S. price.
The only problems are, the trade war with China has shut off deliveries there. Trade tensions with Japan have slowed deliveries. And Europe’s economy is barely conscious. Plus, domestic U.S. demand is low.
This is reflected in last week’s announcement that natural gas prices fell below the record lows in May 2016. The longer all these issues continue, the worse it will get for Golar. Plus, it’s going to take a while before any good news can lift the stock.
Off nearly 20% YTD and 40% in the past year, its 3.4% dividend adds little attraction in current conditions.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, 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.