One of the most difficult things for an investor to learn is when they have stocks to sell. That’s because it’s in our nature to look for the rags-to-riches story. Plus, let’s face it — on more than one occasion, a stock that was left for dead has rebounded to reach new heights.
However, the reality is that in just as many cases, stocks that are falling will continue to fall. And while this doesn’t mean a stock can’t turn around, it often times means that the stock may have further to fall.
How can investors tell the difference? An easy clue for investors to follow is to look at what analysts say about a stock. Analysts are typically assigned to a handful of specific stocks, or they may cover specific sectors. That means they will frequently have contacts within the companies that involve those stocks, which helps them understand the fundamentals of a company.
An analyst’s recommendation is particularly important whenever a stock issues its periodic earnings report. That’s because, in addition to companies posting the results of the quarter just passed, they offer guidance for future results. After analyzing all this information, they issue a buy, hold or sell rating. Although the ratings seem straightforward, many investors know that hold has actually come to mean sell. So, when a stock gets a sell rating, it means analysts have a particularly negative impression of a stock.
The moral of the story, when a stock gets a sell rating, it’s important to get out before further damage is done to your portfolio. With that being said, take a look at these three stocks to sell and consider kissing them goodbye before we enter 2020.
Stocks to Sell Before 2020: Nio (NIO)
Year-to-Date Performance: -58%
In a prior article, I said that the electric car industry is similar to the cannabis sector in that there will be some companies that will be first through the door, but won’t be there when the industry consolidation is finished. That may very well be the case with Nio (NYSE:NIO) stock.
Nio has been given the nickname “Tesla (NASDAQ:TSLA) of China,” but has a lot of obstacles that are getting in the way of their growth. One of those obstacles is that the company has yet to turn a profit — and the path to profit does not look very clear. The upper class in China is not as robust as many think. This is creating a supply and demand problem that is hard to ignore.
Furthermore, the Chinese government has removed the subsidies from electric cars — which is creating even more of a demand problem.
Nio also doesn’t manufacture its own product, which makes it difficult to get a true valuation of the company.
YTD Performance: -84%
It’s hard to imagine that investors would be questioning a fitness company’s stock; Nonetheless, that’s the case with Nautilus (NYSE:NLS). The stock is down over 80% in 2019, and reported an earnings per share (EPS) loss of 36 cents. This was 32 cents worse than analysts’ estimates this past quarter. This made it three-straight quarters that the company reported a negative EPS — and that’s not an encouraging trend.
However, what makes the situation worse is that Nautilus is struggling to perform in its key Bowflex business. The company blamed a slow start to the year on advertising that failed to get across the company’s new digital benefits.
But, in a fitness space that is getting more crowded by the day, it’s simply not credible to believe that the problem with the company’s Bowflex business is due to poor advertising. Especially when a brand like Peloton (NASDAQ:PTON) is showing that even negative publicity can be good publicity.
YTD Performance: -82%
As I mentioned in the introduction, when analysts give a hold rating, it frequently means it’s time to sell the stock. So, when five of the nine analysts that offered ratings on J.Jill (NYSE:JILL) gave the stock a “hold” rating, that can’t be good news.
One of the problems that bedevil J.Jill is its inability to deliver consistently positive earnings. The company managed to break a four-quarter streak of declining earnings in the first quarter of 2019. However, the stock quickly reported a decline in earnings in the second quarter — and not just a decline, JILL’s stock actually reported negative earnings. They broke the string in the third quarter, ticking back to positive and only missing analysts’ expectations by 4 cents; But, a miss is still a miss. Furthermore, the company’s fourth-quarter guidance is also showing another decline in earnings.
For a stock that’s already down 82% for the year, that kind of performance is not going to inspire investors. This is particularly true when the company cites one of the reasons for its poor sales number in the first quarter as a shift from catalog to digital sales that was too aggressive. It’s hard to imagine that such a thing is possible.
As of this writing, Chris Markoch did not have a position in any of the aforementioned securities.