Is the economy slowing down, or isn’t it? Ask ten investors, and you’ll get at least three different answers. One thing is for sure though — the crowd won’t come to a consensus on the matter until it’s too late to do anything about it.
Savvy investors know that planning ahead is a battle half-won. Decide now which names are exceedingly vulnerable to a market-wide pullback, and you’re less likely to freeze up when the time comes to do so.
Some of the following names move in the same direction as the overall market on any given day. The ones that are the most overextended, however, often end up being the ones that take the biggest bite out of a portfolio’s value if and when things get hairy.
To that end, here’s a look at ten stocks to sell should things take a decided turn for the worst.
Advanced Micro Devices (AMD)
It’s been one of the market’s favorite stocks, if not the favorite, since its turnaround started to take hold in 2016, and was confirmed in 2018. But, graphics processing unit (GPU) and chip maker Advanced Micro Devices (NASDAQ:AMD) is highly vulnerable to a headwind, which in turns makes AMD stock highly vulnerable to profit-taking should investors start to sweat.
Underscoring that vulnerability is a budding price war with rival Nvidia (NASDAQ:NVDA) at the end of a palpable refresh cycle. Just days before their launch earlier this month, Advanced Micro Devices cut the suggested price of its 5700 line of GPUs, countering Nvidia’s recently-launched “Super” RTX graphics cards. Both product launches follow a string of new releases since early 2018, which may have already satisfied a market hungry for new GPUs.
An economic slowdown could also easily curtail spending plans for big data centers, which have been big growth drivers for AMD as well as Nvidia.
EXACT Sciences (EXAS)
EXACT Sciences (NASDAQ:EXAS) is a biopharma firm, and as such, isn’t necessarily prone to economic weakness. Consumers don’t skimp on healthcare when an insurer is paying the bills, even though they may skimp on other things.
Nevertheless, after an almost 1500% rally from 2016’s lows, EXACT Sciences stock is uncomfortably prone to a sizable pullback should the environment turn to malaise and doubt.
Though its top and bottom line are making tremendous forward progress thanks to solid demand for its Cologuard colon cancer screening test, the stock’s got a valuation problem. As impressive as Cologuard is, trading at nearly 30 times revenue, the stock’s current price is difficult to justify.
It’s not a sweeping, decisive victory, and certainly not permanent, but Roku (NASDAQ:ROKU) so far has won the streaming set-top box wars. Now it’s leading the SmartTV race with what should be 70% of that nascent market by year’s end, according to Strategy Analytics.
The refocus from hardware to selling ad space on its platform is also proceeding nicely.
The triple-digit rally since the IPO in late 2017, however — as well as the triple-digit rally since the end of last year — is too much too fast. Driven more by hype than progress toward profits, even a small mood change could put the investors into profit-taking mode.
Cyberark Software (CYBR)
Cyberark Software (NASDAQ:CYBR) is in the cybersecurity business. Its ‘Privileged’ platform offers a unique solution that rivals like FireEye (NASDAQ:FEYE) or Palo Alto Networks (NYSE:PANW) can imitate, but not quite replicate. It’s the company’s Privileged suite, in fact, that was responsible for much of this year’s heroic move.
Investors are already having second thoughts about the move though, with a string of lower highs since the end of May alone. We have yet to see consistent lower lows, but if the support offered by the 100-day moving average line (gray) fails to keep shares propped up, a sizable setback could easily take shape.
Zillow Group (ZG)
Though the economy has managed to continue growing despite stumbling blocks like steep tariffs and more migration of some jobs overseas, the housing market has already started to cool. In some regards it has even started to retreat.
In March, prices of homes in the go-go real estate market of Southern California fell for the first time in seven years. They have since recovered, but even so, it’s a microcosm of a bigger trend. Should the broad economy sour even more, an already-vulnerable housing market could entirely reverse course.
That puts self-service real estate listing company Zillow Group (NASDAQ:ZG) in jeopardy. Shares are rallying right now, but it easily becomes one of the top stocks to sell once things merely start to get rocky.
Verisign (NASDAQ:VRSN) has been one of the most reliable advancers since the beginning of 2017, shrugging off the Q4-2018 market-wide weakness with relative ease, and renewing its march to higher highs. It has more than doubled in two years.
What’s amazing about the move is that it has taken shape on oddly anemic fiscal growth. Last year’s top line was up just a little more than 4%, and this year’s expectation is for barely more than 1%. Earnings growth is only marginally better.
Investors may be patient and lenient in a bullish environment like the one we’ve been in thus far. If those investors have to switch to a defensive mindset though, Verisign is exposed. Not only will the demand for website registration services wane, it will be tough to not notice there’s no defensible moat in the business.
Floor & Decor Holdings (FND)
That’s the crux of the risk. While a strong economy inspires consumers to invest in their home’s floors, flooring could easily be one of the planned expenses that gets put on hold when those consumers start to feel uneasy. The company also lacks the scale and diverse product lines that rivals Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW) enjoy, which shield them from economic headwinds.
Credit has to be given where it’s due. Though it got off to a rocky start as a publicly-traded company, Snapchat parent Snap (NYSE:SNAP) eventually learned how to balance future growth with present results.
It also learned the hard way that users of its social media platform are sensitive to sweeping changes. Rekindled user growth and revenue growth is a big part of the reason SNAP stock has managed to rally from under $5 late last year to its current price near $15.
With half the user base of Twitter (NYSE:TWTR) and less than one-tenth of the 2.4 billion regular users Facebook (NASDAQ:FB) boasts, should advertisers be forced to tighten their belts, a still-somewhat-unproven Snapchat would likely be the first advertising venue they’d drop.
Vonage Holdings (VG)
The company never achieved the greatness that many anticipated. Rather than let a third-party utilize their internet service, ISPs simply added voice capabilities to their own menus. That, and mobile phones became the new norm.
Vonage is still around though, finding its niche in the corporate world by facilitating all sorts if digital communications that can’t be accomplished by mere phone connections. The stock’s been a surprisingly strong performer, too.
Still, with cheaper solutions constantly presenting themselves — ranging from Skype to Twilio (NYSE:TWLO) to Dropbox (NASDAQ:DBX) — Vonage’s could be a relatively easy service to drop should cost-cutting become a priority.
Finally, add Wayfair (NYSE:W) to your list of stocks to sell if and when the environment turns ugly.
It’s been an impressive performer to be sure. W stock is up more than 21% for the past year, and is higher to the tune of 99% for the past two years on expectations that it would be able to take at least a small bite out of the e-commerce dominance Amazon (NASDAQ:AMZN) enjoys. It’s made headway to that end even.
With actual profits still years down the road at the company’s current trajectory, even the smallest of economic shakeups could force Wayfair to make a margin-pinching decision its bigger rival wouldn’t be forced to make. More consumers can live without Wayfair than can live without Amazon.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about him at his website jamesbrumley.com, or follow him on Twitter, at @jbrumley.