The bull market in stocks has now transpired for more than ten years. Although stocks to sell exist in almost any market environment, such a run will naturally leave some overvalued equities. This had led to investors turning on some once-beloved companies.
Also, in recent years, the market has seen many IPOs launch. While some continue to succeed (perhaps too well), others did not live up to high hopes. Many other pitfalls have hit stocks as well. Some have exercised poor judgment and could suffer for years as a result. Others have found themselves made less relevant through the creative destruction of capitalism.
Whatever the reason, all of these conditions have given traders numerous stocks to sell. The following worst stocks have already begun their moves downward. As we go into a new year, I think these equities will probably continue to face significant pain.
Beyond Meat (BYND)
Beyond Meat (NASDAQ:BYND) has traded on a parabolic trajectory during its short history. It benefitted from a successful IPO that took it from $45 per share to a peak of $239.71 per share on July 22. Now, it continues to fall as investors begin to ask more questions. As of the time of this writing, it has fallen by about 68% since achieving that peak price.
However, even after the drop, it still trades at a price-to-sales ratio of more than 20. This makes it dangerous as it sells a product that others can copy. Now, larger, more established food companies such as Kellogg (NYSE:K) and Hormel Foods (NYSE:HRL) have launched plant-based meat lines.
Moreover, Americans have increasingly turned against processed food. As much as consumers want to enjoy meat without the possible health concerns, plant-based meat is processed food at the end of the day. Food stocks such as Kellogg and Kraft Heinz (NASDAQ:KHC) have suffered in recent years for this reason. Furthermore, if plant-based meat faces health scares of its own, BYND stock could become worthless.
For now, Beyond Meat is on track to turn profitable next year. Still, as more consumers realize that plant-based meat is another processed food, I think it will begin to trade at valuations comparable to other companies in this space. For this reason, I expect traders will keep BYND stock on their stocks to sell lists for the foreseeable future.
Blue Apron (APRN)
So severely has Blue Apron (NYSE:APRN) declined that it had to initiate a reverse split to continue trading. On rare occasions, such moves have saved a stock. However, the majority of the time, reverse splits keep an equity on a stocks to sell list. I think APRN stock will behave like most of the equities which have seen reverse splits.
APRN stock has starved investors from the beginning. Intense competition, massive losses and frequent changes in the C-suite have defined its time as a stock. Analysts forecast losses of $4.64 per share this year and $4.03 next year. No analyst forecast sees a profit coming in the foreseeable future. I do not think one will happen in the unforeseeable future, either.
Moreover, larger players such as Amazon (NASDAQ:AMZN) or any better-resourced grocery store chain can offer the same thing. Also, in theory, anyone with both culinary and business talent could succeed with this concept on a local scale. Nothing proprietary exists about its recipes or the ingredients included. Like restaurants, this industry will bifurcate. On one side will be the largest food sellers taking their groceries to create these boxes. On the other, sole proprietors will create localized niches. This will squeeze Blue Apron out.
If you own APRN stock, sell it yesterday. For those who have the ability and comfort level with shorting, a short bet on APRN is as close to a “sure thing” as the market offers.
Johnson & Johnson (JNJ)
Admittedly, this time last year, virtually no serious analyst would have placed Johnson & Johnson (NYSE:JNJ) on a stocks to sell list. For decades, consumers regarded J&J as the venerable provider of home healthcare products. Moreover, Johnson and Johnson is only one of two companies to earn a “AAA” credit rating.
However, JNJ stock has long derived the majority of its profits in pharma. Consequently, its involvement in the opioid crisis has changed everything. For now, the company faces a $465 million judgment in Oklahoma. This state represents about 1.2% of America’s population. If one extrapolates that figure to the other 98.8% of the U.S. populace, it far exceeds the $18 billion it currently hold in cash.
As a result, Moody’s has changed the outlook on J&J’s credit rating from “stable” to “negative.” Others have speculated that the lawsuit costs will endanger its 56-year streak of annual dividend increases.
Should either of these scenarios occur, sellers will unload JNJ stock en masse. It could take years for JNJ to recover from such occurrences. Even worse, a reputation built up over decades may never recover.
In the long run, I expect JNJ stock to move past this and resume its move higher. However, I see no reason for investors to stick around for the deep financial pain and reputational damage that will soon come.
Rite Aid (RAD)
Rite Aid (NYSE:RAD), like Blue Apron, has confirmed its place among stocks to sell by instituting a reverse split. The retail pharmacy chain has suffered as multiple retailers have entered its business. The latest threat comes from Amazon.
Also, investors need to know that the retail pharmacy industry in general appears to be under siege. CVS (NYSE:CVS), a larger, better-resourced pharmacy retailer, felt the need to acquire an insurer to stay relevant. Rite Aid’s debt level effectively blocks an equivalent move. Still, if CVS feels it has no future operating exclusively as a retail pharmacy, this bodes even more poorly for Rite Aid.
Unfortunately for owners of RAD stock, it has become the Sears of retail pharmacies. It too would have already become an over-the-counter stock had it not instituted the reverse split. Like Sears, it has no place in today’s retail world. Consumers can find its products, often more cheaply, at larger and more financially stable retailers.
Multiple attempts to sell the chain to a competitor have failed. If the likes of Walgreens (NASDAQ:WBA) or Albertsons do not want this pharmacy chain, I do not think average investors should want it either.
As a company, Shopify (NYSE:SHOP) continues to fire on all cylinders. It enables small retailers around the world to sell across the planet through their online shopping platform. So successful is the company that analysts predict that profits will grow at an average rate of 57.4% per year for the next five years.
However, this is a stocks to sell article, and the company’s success has made SHOP stock inordinately expensive. It trades at a forward price-to-earnings ratio of over 350. I do not recommend shorting any stock reaching new highs. Nonetheless, signs have appeared that Wall Street may have grown weary of bidding SHOP stock continuously higher.
Shopify stock trades at about $312 per share as of the time of this writing. This is almost 24% below its August high of $409.61 per share. Moreover, by no means does Shopify hold a monopoly in e-commerce platforms. WooCommerce, Wix (NASDAQ:WIX) and Adobe’s (NASDAQ:ADBE) Magento stand as just a few of the dozens of peers in this space. Moreover, the economic expansion has endured for more than ten years. No signs of a recession have appeared for now, but such a downturn would disproportionately hit Shopify’s small-business clients.
The growth rate of SHOP stock could arguably justify a triple-digit P/E ratio. But at more than 350 times earnings, investors should assume that they will see a bubble in SHOP.
Spotify (NYSE:SPOT) has amazed Wall Street by merely surviving. In recent years, the smartphone has emerged as a sort of Swiss Army knife of tech. This multi-purpose device has caused several “single-app” companies to fail.
Others like Garmin (NASDAQ:GRMN) or GoPro (NASDAQ:GPRO) survived by creating specific apps not feasible for a smartphone. However, in Spotify’s case, mega-tech firms such as Amazon and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) have copied its core music offering. Spotify has adeptly sidestepped this by becoming the music provider for Samsung (OTCMKTS:SSNLF) and going into content development.
I put SPOT on the stocks to sell list for its vulnerable moat. Considering the challenges it faces, Spotify has done well, but thriving could become a different story.
Consensus estimates point to the company becoming profitable in 2021. However, even if we go by the 2022 profit estimate of $2.49 per share, that means it trades at 56 times 2022 earnings. This places the stock price well ahead of itself, and a lot could happen between now and 2022.
Admittedly, this prediction goes against the rosier forecasts on SPOT stock coming from many of my colleagues. Spotify as a company may end up thriving as a small fish in a sea of large sharks. However, its challenges make paying a high multiple a dangerous investment.
Until recently, analysts considered Tilray (NASDAQ:TLRY) a top-tier Canadian marijuana stock. Its 2018 IPO led to a run that took it as high as $300 per share. However, legalization in Canada helped to reverse its trajectory. Unlike other marijuana stocks, it did not recover in the early part of the year. As of the time of this writing, it trades at around $20.40 per share, more than 90% below its all-time high.
TLRY stock also fell during the spring and summer. A glut in the supply of marijuana and a vaping crisis have weighed on all marijuana stocks. However, what makes TLRY one of the stocks to sell are financial conditions that will at least cost it its top-tier status. Like many small marijuana companies, Tilray has nearly run out of cash. The options it has for raising more money will likely put pressure on Tilray stock without any indication it will lead to a long-term turnaround.
Unlike Canopy Growth (NYSE:CGC), it lacks an equivalent investor from a company like Constellation Brands (NYSE:STZ) that will keep it funded through an industry shakeout. This makes it not only one of the marijuana stocks to sell, but it also makes some wonder whether it has a long-term future as a stock at all.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.