In a market like this, the one thing that’s more important than knowing when to buy is knowing what to buy. These seven small-cap stocks are not the answer.
Right now is not the time to be taking on any more risk. There are some quality stocks out there that are actually benefiting from the coronavirus from China because they’re strategically built for the kind of conditions we’re in right now and the adoption of revolutionary technology in the near future.
But this isn’t about them. It’s about the stocks to avoid in times like these. The seven small-cap stocks that might not make it through this are in sectors that are flattened by what’s going on, and these small-cap stocks are not likely to get out well, if at all.
And for those bargain-hunting dividend investors, the small-cap stocks here with big dividends aren’t worth the potential downside … including inevitable dividend cuts.
Small-Cap Stocks to Sell: United States Steel (X)
United States Steel (NYSE:X) was started by Andrew Carnegie in 1901. And while it has lasted nearly 120 years, the last four decades have been a struggle. If it wasn’t for Uncle Sam’s largesse, X stock would have gone away a long time ago.
It used to be one of the largest steel makers in the world. Now it is a U.S. strategic asset that is a much smaller company trying to compete against major Japanese, Chinese and South Korean steel firms as well as others in Europe and Australia.
And right now, it shuttered its plants as China’s plants come back online. You can be sure that they’re producing at full throttle to boost their economy and the companies’ revenue.
This is going to be tough for X. And the stock reflects it — it’s off nearly 70% in the past year and 50% year-to-date. That means X stock was struggling even when the economy was decent.
Six Flags (SIX)
Six Flags (NYSE:SIX) is up 15% in the past 5 days and delivers a 6.4% dividend.
Sounds pretty good, right?
Well, it’s all perspective. It has bounced off its recent lows — it’s down 72% in the past 3 months — because of the historic stimulus package. The problem is, that doesn’t get people in the parks, it merely keeps workers from hitting the unemployment lines.
But there will be no visitors during prime season. And it’s not cheap to maintain these parks, especially with no customers.
And getting those patrons back will be another issue as well. Also, it is already getting downgraded by many analysts, as well as in the Portfolio Grader system I use to find Growth Investor plays. Its Quantitative Grade of “F” indicates that institutions are stepping back, which erodes support for the stock.
Cinemark (NYSE:CNK) is one of the largest movie theater chains in the U.S. and the largest chain in Brazil.
The company closed all its theaters until further notice.
And the problem here is, this industry isn’t really big enough or powerful enough to get its lobbyists to send some money its way. It will have to wait in line.
While the operation itself isn’t too labor intensive, the theaters take up a lot of space that’s leased. And those rent checks are due every month.
Don’t be tempted by its 11.7% dividend, this stock is off 71% and the quarantine is just beginning.
Carnival (CUK, CCL)
Carnival (NYSE:CUK, NYSE:CCL) is one of the leading cruise lines for U.S. customers. And given the stories already out regarding the coronavirus spreading through cruise passengers, it’s going to take some time for people to get back on a boat with thousands of strangers.
Now, it seems like the only revenue opportunity the ships can find is being leased by the government to quarantine sick citizens in remote locations in big cities with ports. And that’s not much of a revenue model. That’s not to say I’m not finding great growth investments elsewhere … it’s just that travel and hospitality has run into extreme difficulty.
Plus, Carnival is one of the smallest cruise lines out there by market capitalization, so it wouldn’t be surprising if a rival made a move for it or a private equity firm moved in to reorganize it — not at a premium but as a lifeline.
It had a brief rally last week, but its overall trajectory is down — it’s off 77% in the past 3 months. It’s clear why CUK stock is one of my small-cap stocks to sell.
Macy’s (NYSE:M) started in the year of the great market crash of 1929 and this current crash may close the circle on the legendary retailer. It currently operates Macy’s, Bloomingdale’s and Bluemercury.
Yes, it has a massive dividend yield of 25.4%. But that doesn’t do much for annual performance that’s off 77%. If and when that dividend disappears, you definitely don’t want to own what’s left of the stock.
First a slow transition to online shopping hit Macy’s. Then it really suffered as malls and department stores in particular couldn’t attract customers. This could be the third strike for this major retailer.
And S&P just cut all its credit ratings on the stock.
Next on my list of small-cap stocks to sell is Sasol (NYSE:SSL), a South Africa-based global energy and chemical company. It has a strong presence in South Africa, but also has exploration and production operations in Gabon, Mozambique and Canada.
Its specialty chemicals are distributed globally. And its coal-to-liquid gasification process is used extensively in South Africa.
When apartheid hit South Africa, it was cut off from the global energy market and had to make do with its own energy sources. The company developed a process to turn coal into liquified natural gas and continues its use today.
But like most energy and chemical players, a global recession is not a good market to sell into. Rather than companies operating a very expensive business in an exceptionally volatile market, I’m focused on compelling tech investments like this.
The stock is off nearly 91% in the past 3 months, which is never a good sign. It might make it through, and its isolation may keep it a player in sub-Saharan Africa. But Sasol’s global operations will take a long time to come back from this.
Macerich (NYSE:MAC) is another one of those companies with a staggering dividend yield — nearly 29%.
Even the fact that it’s a real estate investment trust (REIT) should be good news since the Federal Reserve is working overtime to backstop loans and mortgages.
However, MAC is in the business of shopping malls. That is the exactly wrong sector to be in right now. Not only was it hurt by the trend toward e-commerce that started in earnest last year, but now, the malls are dead or nearly dead and the tenants are struggling to pay their rents.
This is going to be a tough road back and that massive dividend is likely to disappear, which will drive the stock down even further. This knife is still falling.
There are still great dividend investments out there, as my Growth Investor subscribers can tell you. And with bond yields so low (even negative, in some cases!) dividend stocks are leading the way out of this bear market.
Once we start hearing from analysts and companies during earnings season, I expect growth stocks to follow … at least, the ones who have what it takes, like my Netflix of 5G.
The 5G Buildout Is an Incredible Opportunity for Investors Right Now
Within two years, most cell phones will be 5G enabled and be able to wirelessly handle television streaming. With 5G, we’ll have cable modem speeds on any device; no need to plug in. That’s a big deal for rural areas … the very same areas that are also key to President Donald Trump’s reelection. So, by pushing 5G over the goal line, Trump will deliver a big win for his base — and strike a blow against Chinese rivals like Huawei Technologies.
But, in the big picture, 5G is about much more than trade wars and faster downloads. Because 5G is 100 times faster than 4G, it’ll allow your internet devices to work in real time. That advancement is a game changer for tech companies.
With the 5G infrastructure market set to grow at an annual rate of 67% over the next 10 years, the entire market will go from $780 million to nearly $48 billion. This buildout is where I see opportunity with 5G stocks now.
Cable companies can do their best to fight back with fiber optics … but they can’t compete with the convenience of a smartphone, once it’s got ultra-fast 5G. That’s how my 5G infrastructure play will capture more market share from the broadband cable companies.
The stock I’m targeting is a favorite on Wall Street, and it has strong fundamentals, too — making it a “Buy” in my Portfolio Grader system.
When you do, you’ll see how to claim a free copy of my new stock report, The Netflix of 5G, which has full details on this company — and what makes it such a great investment.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.