Stocks suffered a terrible August with the Dow, S&P 500, and Nasdaq losing 1.7%, 1.8%, and 2.6%, respectively. If you didn’t take the time this past month to figure out which stocks to sell, you might want to do that before too long.
September is historically the worst-performing month on the calendar. Over the past 82 years, the S&P 500 and Dow have averaged a 1% decline in September. Even worse, when the S&P 500 falls by more than 1.5%, as it did this past August, the index tends to fall by 0.9% in September.
According to Kensho, an analytical tool used by Wall Street to generate trading profits based on market history, the S&P 500 loses ground 48% of the time in September, leaving no doubt that if you’re going to take profits, September is an excellent time to do it.
As if what I’ve stated isn’t enough to get you thinking about which stocks to sell, since 1950, September turns out to be the worst month in a pre-election year.
Well, here we are, smack dab in the early stages of a 2020 election cycle, which points to another miserable month in the markets. If you’re the conservative type, here are 10 stocks to sell that have made significant gains so far in 2019.
Stocks to Sell: Beyond Meat (BYND)
Do I think Beyond Meat (NASDAQ:BYND) is a bad stock to own for the long term? Absolutely not.
However, when a stock’s gained more than 500% in a little over four months as a public company, if you bought the plant-based meat company’s shares in the IPO, taking some profits off the table isn’t the worst idea in the world.
I know it’s tempting to buy after BYND stock fell precipitously in August, losing 30% of its value from its late-July, 52-week high of $239.71, but given the likelihood September is going to be another losing month in the markets, discretion is the better part of valor.
That’s especially true if you consider that the competition continues to heat up in the plant-based food industry. Furthermore, Beyond Meat doesn’t make money on a GAAP basis and will barely break even on a non-GAAP, adjusted EBITDA basis in fiscal 2019.
Of course, if you’re a buy-and-hold investor, the fact that selling now would trigger a higher capital gains tax due to selling within a year means you might want to take some cash and buy more in October should it fall into the $140s.
Pilgrim’s Pride (PPC)
It seems that plant-based meats aren’t the only type of protein that’s popular at the moment. Pilgrim’s Pride (NASDAQ:PPC), which is one of the world’s largest chicken producers, has gained 106% year to date, a fantastic performance that has brought its stock back to life after several years in the doldrums.
What did it do to gain this momentum? In the simplest terms, it has made more money in 2019.
On July 31, Pilgrim’s Pride announced Q2 2019 earnings. Through the first six months of this fiscal year, revenues fell by 0.3% to $5.57 billion. However, on the bottom line, it generated a six-month operating profit of $416.6 million, 7.7% higher than a year earlier.
It wasn’t so much the gains in the first six months, but rather what happened in the second quarter, which saw operating income and adjusted EBITDA increased by 58.1% and 34.7%, respectively, on a 0.2% increase in sales.
Mexico and U.S. operating margins increased dramatically in the second quarter offset by middling results from its European operations. Expect it to continue making acquisitions outside the U.S. to grow its global footprint.
PagSeguro Digital (PAGS)
PagSeguro Digital (NYSE:PAGS) is a Brazil-based payment services company that went public in January 2018 at $21.50 a share, raising $2.3 billion from its IPO. Losing ground through the latter half of 2018, PAGS has been on fire in 2019, up 171% year to date.
As IPOs go, it’s the most successful Brazilian public offering in many years, but it has also done nicely versus its software peers, which gained 27% over the same period. It just goes to show you that fintech success isn’t just for American firms.
The company’s five pillars of growth have delivered payment processing to small businesses without the need to open a bank account, helping to grow the Brazilian economy.
The company finished the second quarter ended June 30 with 9.4 million active users generating 39% revenue growth year over year, along with 42% growth in net income.
A lot is happening in South American business these days and PagSeguro Digital is an integral part of the change taking place.
Long-term, I’d hang on to its stock, but it’s hard not to take some profits off the table after less than two years as a public company.
I have to be honest; I had never heard of NovoCure (NASDAQ:NVCR), an Israel-based company that was founded in 2000 to create a new way to treat solid cancer tumors.
In 2011, NovoCure received FDA approval for Optune, its treatment of recurring glioblastoma. Four years later it went public in October 2015 at $22 a share. Up 283% since its IPO, NovoCure has moved on to get FDA approval for two more drug treatments.
In the second quarter ended June 30, NovoCure reported that it had 2,726 active patients using Optune, with 1,846 in the U.S. As a result of these patients, it generated $160 million in revenue in the first six months of fiscal 2019, 40% higher than a year earlier. On the bottom line, it lost $13.4 million in the first half of the year, one-third the amount it lost a year ago.
Although it’s getting close to profitability, the fact that it’s gained 149% year to date suggests it’s ready for a cool down.
Low interest rates have helped TopBuild (NYSE:BLD) gain more than 100% in 2019. The Fed’s recent cut helped the installer and distributor of insulation and building products.
In the past month, it’s gained more than 1.5% while the markets as a whole have barely moved. Investors like stocks that benefit from interest rate cuts. TopBuild is in that category.
In the second quarter ended June 30, TopBuild grew its sales by 8.9% to $660.1 million with a 260 basis-point increase in its gross margin to 26.5%, which led to an operating profit of $76.0 million, 73.9% higher than a year earlier.
In fiscal 2019, it expects revenue to be at least $2.61 billion with adjusted EBITDA of $345 million.
At present, everything about TopBuild’s business is chugging along.
However, if you were one of the lucky Masco (NYSE:MAS) shareholders who got one share of TopBuild for every nine shares of the parent in the June 2015 spinoff, you might want to take some profits because it’s been nothing but capital gains over the past four years. Not to mention the housing market is starting to show signs of weakness which is always bad for companies like TopBuild.
There’s no question Carvana (NYSE:CVNA), the e-commerce platform for buying and selling used cars, is having a strong year in the markets up more than 165%.
If you own CVNA stock, the fact that it made $3,175 in gross profits per vehicle in the second quarter, 46% higher than a year earlier, has got to help soften the blow from a $64.1 million loss.
There’s no question that Carvana’s revenue growth is through the roof. In Q2 2019, it grew sales by more than double to $986.2 million, expanding its footprint to 137 markets across the U.S.
While the company continues to scale its business, analysts are increasingly concerned that its pathway to profitability isn’t going to be nearly as quick as some think it is.
Between 2019 and 2020, Carvana is expected to burn almost $1 billion in cash, which means it’s likely going to need to raise more debt or equity by the end of next year. It might be a disruptor, but to truly change the used car business, it’s got to remain solvent.
Shake Shack (SHAK)
I can remember when the purveyor of burgers was doomed to fail. Now, Shake Shack (NYSE:SHAK) is back with a vengeance up 137% year to date and 44% on an annualized basis over the past three years.
Back in June 2016, InvestorPlace Assistant Editor John Devine had this to say about SHAK:
“SHAK stock trades at 107 times earnings, 66 times forward earnings, 6.7 times book and at a 3.4 PEG ratio. The traditional metrics are screaming that this stock is overvalued. With a profit margin barely scraping the 2.5% level, why is Shake Shack trading like a cloud computing company?”
Hey, it was easy to pick on SHAK back then. It had been a public company for less than two years and was focusing on expansion rather than profits.
As a result of this expansion, Shake Shack is outperforming McDonald’s (NYSE:MCD) when it comes to their stocks. However, not everyone is convinced the stock’s performance will continue unabated.
“We estimate new units continue to weaken sequentially both on the top-line and especially on the contribution margin line, are contributing an estimated 90-200 bps pressure on consolidated RLM in 2019. This pressure should continue for the foreseeable future,” said industry analyst John Zolidis recently.
He doesn’t see much upside left. Given the three-year run SHAK stock has been on, now might be the perfect time to take some profits.
In the meantime, the video-streaming platform gained 459% year to date, with almost 15% of those gains coming in the past month when markets have been dormant or extremely negative.
It is due for a correction.
However, if Roku continues to deliver innovative products like its $180 Roku Smart Soundbar, expected to launch in October, it’s going to be difficult to keep ROKU stock down.
If you’ve owned ROKU for more than a year, I’d consider taking some profits, so that you can repurchase it after its next correction. It has had two corrections of more than 20% in both 2019 and 2018, with all of them happening in the first three months of the calendar year.
History is likely to repeat itself.
I loved the headline of my InvestorPlace colleague Will Healy’s latest article about Snap (NYSE:SNAP).
“The Rally of Snap Stock Could Disappear Faster Than a Snapchat Photo,” which pretty much sums up the subject of his article.
“At its current levels, SNAP stock has become dangerous to own. Traders should sell Snapchat stock before their investment dollars disappear like their Snapchat photos,” Healy wrote Sept. 5.
Like Healy, I’m perplexed by the popularity of SNAP stock; although it’s possible it could hit $20 in 2019, I believe a correction in 2020 is all but inevitable.
If you’ve made money speculating on SNAP stock, now is the time to get out, while you still have profits to count.
The history of LivePerson (NASDAQ:LVPN) is one of perseverance. The company started in 1998, helping large businesses provide online customer service through their LivePerson eCRM platform. Several acquisitions later and an IPO in 2000, it has grown to become a cloud-based company with over 18,000 customers and an increasing focus on AI.
As a result of its move to the cloud and AI-related services, LivePerson’s stock has jumped by more than 111% in 2019 and 70% on an annualized basis over the past three years.
And yet the company’s sales over the past three years have grown by just 4.5% from $239 million in 2015 to $249.8 million in 2018. At the same time, it has racked up cumulative losses of $69 million.
The fact is, LivePerson hasn’t made money since 2012 when it earned $6.4 million on $133 million. If it doesn’t make money on a GAAP basis soon, investors are going to run away in droves.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.