The world of stocks is a perfect example of what’s known as “survival of the fittest.” Some stocks are meant to last for another 100 years, while others might not even make it past the end of 2020. The latter group are certainly stocks to sell.
Analyzing the business model and fundamental data of a company can help us decide whether a stock truly has staying power. Unfortunately, even some well-known and heavily traded names might not last through the end of the year.
A handful of stocks to sell that are on the proverbial chopping block are:
- Chesapeake Energy (NYSE:CHK)
- Hertz (NYSE:HTZ)
- Norwegian Cruise Line (NYSE:NCLH)
- Dave & Buster’s (NASDAQ:PLAY)
Buyers are hoping that these stocks manage to survive, while short sellers will do everything they can to get them to zero — or delisted. Now we’ll take a closer look at these stocks to sell so you can decide for yourself which ones will still be around in 2021.
Stocks to Sell: Chesapeake Energy (CHK)
How concerned should owners of CHK stock be? When the company itself questions its ability to continue to exist, you know there are problems afoot. After all, this is not an event that happens every day.
More specifically, Chesapeake’s recent 10-Q filing spoke of “substantial doubt about the company’s ability to continue as a going concern.” And it’s not the first time Chesapeake has used the “going concern” phrasing. The company also used it in an U.S. Securities and Exchange Commission filing in November of last year.
Citing low oil prices and a host of other factors, Chesapeake also warned that the company’s liquidity and its “ability to comply with our financial covenants during the next 12 months” could be affected. Honesty is indeed the best policy, and honestly, CHK stock is best left alone.
Sometimes the stock market can be flat-out sadistic. In the case of HTZ stock, the trading community kept the share price steady from the summer of 2017 to February of this year.
Then the outbreak of the novel coronavirus hit the car-rental firm like a ton of bricks. Shelter-in-place mandates, along with high unemployment, have absolutely crushed the demand for rental cars.
And it’s practically impossible to predict how much longer this state of affairs will persist.
But to be honest, the company was struggling even before the spread of the coronavirus. Hertz tried raising its prices but only ended up losing market share. Now the company is just trying to avoid bankruptcy. In light of this, HTZ stockholders should choose to reevaluate their positions.
Norwegian Cruise Line (NCLH)
The drop in NCLH stock from $58 to under $13 was quick and dramatic. If you happen to be “holding the bag” on that trade, it might be tempting to hang on to your shares in hopes of a recovery.
That might not be a good idea, though. The Centers for Disease Control and Prevention enacted a no-sail order, and it’s set to remain in effect until July 24. It’s going to be awfully hard for Norwegian Cruise Line to make money as long as its ships can’t sail.
In what might be perceived as a desperate attempt to raise capital, Norwegian recently issued a large amount of debt which, of course, it will have to repay at some point. Moody’s downgraded Norwegian’s senior unsecured debt to a “Ba2” rating. That’s basically calling it junk debt.
With more debt, and with Norwegian’s cruise ships grounded, there’s no guarantee that NCLH stock will be trading on the New York Stock Exchange for the remainder of the year.
Dave & Buster’s (PLAY)
Restaurants, pool tables and video games are all great fun. However, the Covid-19 pandemic has forced many people to stay at home. As people have learned how to cook and play games at home, the business of Dave & Buster’s has suffered.
PLAY stock’s existential threat comes from the possibility of persistent unemployment. The company needs for people to spend discretionary income, which many people don’t have now.
Even Federal Reserve Board Chair Jerome Powell admitted that a prolonged recession could “leave behind lasting damage” in terms of the economy. Stay-at-home orders are only compounding the problems for the restaurant industry.
Therefore, trading PLAY stock on the long side might be a game that simply can’t be won.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.