Despite the uncertainty that plagued first quarter earnings, the stock market ticked higher. Now, some are starting to question whether or not this rally can last in the face of worsening economic data and potentially devastating Q2 results. For some, that means it’s time to choose which stocks to sell and take profits on.
When June’s earnings season comes around, the stock market could be in for a crash — especially if the number of novel coronavirus cases picks up meaningfully in the absence of lockdown measures. While investors may be willing to overlook some Q2 weakness if things are meaningfully better on the virus front, there’s a good chance surprisingly painful results will pull equities lower in two months time.
Vidyanand Choudhary, professor and senior associate dean of information systems at the Paul Merage School of Business at the University of California Irvine, warned that Q2 will offer a more complete picture of the shutdown’s impact on businesses.
Q1 was only partially affected by the COVID-19 slowdown. We will see the full effects of the nationwide lockdowns in the second quarter. So far, the data indicates that more than 26 million US workers have sought unemployment benefits. We will begin to gradually reopen the US economy in the second quarter, but the economy and consumer confidence are unlikely to rebound until we find a cure or vaccine for COVID-19. Several drugs are in clinical trials and we will start getting the results in the next few weeks. Vaccine trials will take several months so they are unlikely to have any impact on Q2. The uncertainty surrounding the timing for a viable treatment to come to market will be one of the biggest challenges for investors.
Chaudhary also pointed out that Q2 volatility offers a buying opportunity for investors with long-term goals.
On the flip side, those who don’t want to risk another devastating crash may want to start taking profits on these high-flying stocks to sell. To that end, I recommend the following three stocks to sell:
Beyond Meat (BYND)
I’ve always been skeptical of BYND stock. The firm’s legal issues coupled with its lack of a competitive moat were enough to keep me from buying into the hype. But for those who jumped into the meatless meat maker during the March crash, it has admittedly been a lucrative pick.
However, I think Beyond is one of the best stocks to sell now because its rally is built on a house of cards both in the long-term and the short-term.
For one, there’s the fact that while Beyond’s offerings have seen a bump in sales due to meat supply shortages, that won’t last forever. Real meat is cheaper and (arguably) tastier for those who haven’t gone vegetarian. It just doesn’t make any sense that they’d pay a premium to switch once this is over.
Then there’s the argument that Beyond Meat’s patties are heavily processed and don’t necessarily align with consumers’ shift toward plant-based eating. Sure, they’re not animals, but they’re packed with unpronounceable ingredients that aren’t considered that much healthier.
BYND stock is up 60% from it’s March lows. That’s an incredible gain for those who bought in once the market crashed. But Beyond Meat is also trading at its highest level in seven months, making it a good time to take profits even if you were holding on to the firm before the coronavirus-induced crash.
The coronavirus has been unquestionably beneficial to e-commerce and delivery services, so it would make sense to keep a tight hold on Amazon stock as the crisis continues. But Amazon has become one of the top stocks to sell right now because the firm’s share price has soared to all-time highs despite issuing worrying guidance for the months ahead.
During Amazon’s quarterly results, the firm warned that the upcoming year would be rife with pain for shareholders as the company wipes out profits in order to protect workers and customers from coronavirus.
Normally, when Amazon starts spending it makes for a good buying opportunity. That’s because the firm’s spending sprees tend to spook investors, but pay-off in the long run. In this case, the opposite is true. Despite the warning, AMZN stock is up nearly 17% over the past month.
Plus, Amazon’s spending this time around won’t facilitate growth. Instead, it’s a cost the company must bear in order to continue doing business. There will be better opportunities to buy AMZN stock. Taking profits now guards against a huge drop on dire Q2 results.
TSLA stock is a little bit like Marmite — some love it, some hate it. A big part of the reason for that is the company’s exuberant CEO Elon Musk. Musk himself said he believed Tesla’s stock price was ‘too high’ at the start of May, leading many to speculate whether a media stunt or honesty was behind the tweet.
But in Musk’s defense, the luxury car-maker was trading at $800 per share at a time when the future of the U.S. economy was looking very bleak. Since that time the share price has risen by $20.
I’m inclined to agree with Elon Musk. Tesla gets a lot of press for its cutting edge products and the promise of self-driving technology, but the fact remains that Tesla is a car maker. The company has high fixed costs and relies on a strong economy in which people have enough money to buy fancy new cars to be profitable.
If we’re heading into a recession, Tesla will likely feel the same pain the rest of its automaker peers are feeling, investors just haven’t priced that in yet — so you might want to sell before they do.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.