While recovery has slowed somewhat over the past month, markets continue to bounce back from their March lows. However, the novel coronavirus has done lasting damage. For some companies — airlines in particular — there is no clear path back to normalcy. Others were already in trouble, and the pandemic was the final straw. This is not the time to scoop up shares on the cheap. Instead, it’s time to clear house of these stocks to sell.
There’s not going to be a miracle recovery for these seven stocks. At least not any time soon. If any of these are in your portfolio, I suggest you get rid of them before they drag your investment down further:
- American Airlines Group Inc (NASDAQ:AAL)
- Delta Airlines, Inc. (NYSE:DAL)
- Southwest Airlines, Co (NYSE:LUV)
- Marathon Oil Corporation (NYSE:MRO)
- Wells Fargo & Co (NYSE:WFC)
- Exxon Mobil (NYSE:XOM)
- Macy’s Inc (NYSE:M)
Read on to find out why these stocks came out so poorly in my Portfolio Grader.
Stocks to Sell: American Airlines (AAL)
American Airlines is in trouble.
The company has been burning through $70 million in cash every day since the coronavirus pandemic hit. American Airlines is reducing capacity, retiring some of its fleet early, it ceased hiring, paused pay increases and slashed marketing budgets. Despite all these measures, the best-case scenario has the company continuing to burn through $50 million a day starting in June.
That’s a big red flag.
In addition, the company is carrying roughly $34 billion in debt. American Airlines survived a 2012 bankruptcy, and there have been rumors it could be facing Chapter 11 again. Those rumors may not pan out, but even if it avoids filing, American Airlines faces a rocky future. At the start of the month, Evercore ISI slashed its price target for American Airlines shares to $1.
AAL stock has put together a mini rally since Friday, posting a gain (at the time of this writing) of 20% since Thursday’s close. Don’t read too much into that. American Airlines has rallied several times since March — each time in a matter of days it has dropped to lower than the rally’s starting point.
If you own AAL stock, be warned — it’s definitely among the stocks to sell right now.
Delta Airlines (DAL)
Delta Airlines reported a first-quarter loss of $534 million. It warned that second-quarter earnings will be down by 90% over the pre-coronavirus forecast. CEO Ed Bastian is confident he can turn things around, but says it could take two to three years.
Delta Airlines’ plan for recovery is built largely around downsizing its workforce. Bastian sent a memo to employees that made the point:
“We are confident that people will begin to travel again … We don’t know when it will happen, but we do know that Delta will be a smaller airline for some time, and we should be prepared for a choppy, sluggish recovery even after the virus is contained. I estimate the recovery period could take two to three years.”
The CARES Act aid Delta received prevents it from laying off any staff or cutting their pay, until Sept. 30. At this point, the airline has convinced over 40,000 of its 90,000 employees to take unpaid leave, ranging from 30 days to 12 months.
When those leaves are up, the company will face a reckoning. It’s going to have to hope for early retirements or buyouts and if those don’t work, layoffs will loom. No matter what happens, the outcome will be expensive.
Delta faced an uphill battle to recover from the Great Recession. The post-pandemic recovery will be tougher. With DAL stock now down 58% from its February high close, it may look tempting, but there’s a reason why Warren Buffet dumped his airline stocks (including DAL) at a loss.
Southwest Airlines (LUV)
Southwest Airlines faces the same basic challenges all the major airlines are dealing with: a catastrophic drop in passengers, ongoing cash burn to remain operational, government assistance that comes with catches (including bans on stock buybacks, and dividends), and an uncertain future that’s reliant on a Covid-19 vaccine that doesn’t yet exist. It’s what makes so many of them stocks to sell.
Southwest may be in better shape than other airlines in terms of its balance sheet, but being the best of a bad bunch doesn’t make you great.
Between Feb. 12 and May 15, LUV stock dropped by nearly 60%. Just two weeks ago the market had lost confidence in the airline and its ability to survive the coronavirus pandemic. It has been on the upswing since then, but all it will take to send the airliner careening down again is the hint of a coronavirus second wave.
It’s simply not worth the risk, which makes it one of the stocks to sell now.
Marathon Oil Corporation (MRO)
This year has not been kind to American oil producers. While other sectors have been contending with the coronavirus pandemic, oil companies have also been caught in the middle of an oil price war. With oil prices nearing 20-year lows, Saudi Arabia and Russia finally agreed to cut production in April. A month and a half later, Brent Crude is still selling at half the price it was earlier this year, at just over $35 per barrel.
The crisis combination has already claimed several prominent victims in Diamond Offshore Drilling and Whiting Petroleum (NYSE:WLL). They were two of five casualties among publicly traded oil companies that declared bankruptcy in April.
Marathon has stated that to hit a sustainable breakeven point, it needs oil prices in the $47 per barrel price range. It’s expecting that by slashing capital expenditures it can bring that breakeven point down to $40 per barrel.
There are no guarantees the current production agreement will hold. And even if it does, if the coronavirus pandemic isn’t brought under control, demand for oil won’t recover any time soon. Between lockdowns, employees working from home and grounded airplanes, demand for oil in the U.S. has plunged to 30 year lows.
Some of those measures — including working from home and reduced business travel — may become permanent. Oil demand may never recover to pre-pandemic levels. That’s going to make it tough to bring those prices up, even if production cuts stick. After two months of modest gains after the April production cutback, MRO stock is still down over 56% in 2020 and remains near all-time lows — putting it among the biggest stocks to sell.
Wells Fargo & Co (WFC)
Bank stocks aren’t a good bet right now. The American economy is in recession. Unemployment is on track to hit 12%. A depression may be around the corner. Big banks are already feeling the impact, and the worst of the bunch might just be Wells Fargo.
In April, WFC stock got a C-rating in my Portfolio Grader, when it was the only one of the big banks to miss on both earnings and revenue for the first quarter.
The bank stock now belongs among F-rated stocks. The bank set aside $4 billion last quarter to cover expected losses when consumers and businesses default on loans, credit cards and mortgages. That may not be enough. If job losses continue and an expected coronavirus second wave hits in the fall, losses will mount. Throw lowered interest rates in the mix, and the situation for banks could go downhill fast.
WFC stock is already down nearly 52% this year. I don’t see any indicators that would make me confident it’s going to stage a recovery, but there are plenty of warning signs.
Exxon Mobil (XOM)
XOM stock has been on the decline since 2014. In June of that year, it topped $102, but it has been a steady slide ever since. By early February of this year — when XOM stock was trading at the $63 level — the company’s market valuation had plummeted by $184 billion since that 2014 peak.
Think about that number. Since then? The stock is down another 27%. And that’s after its two-month rally from $31.45 during the March market selloff.
Virtually everything is going against Exxon Mobil at this point. Oil prices are a dumpster fire, thanks to the combination of a price war and plummeting demand. Natural gas prices have been in the basement for years — even in 2014 they were a third of their 2005 peak, and, today, natural gas goes for less than half of what it did in 2014. The climate crisis and resulting “green” movement has been pressuring the company’s refinery and chemical businesses.
In 2012, Exxon Mobil was America’s most valuable company. Today, its market capitalization is under $195 billion. XOM stock is a dinosaur at this point. And we all know what happened to the dinosaurs.
Macy’s (M)
Finally, another dinosaur, this one from the golden era of department stores. Remember those? The vast brick-and-mortar stores where people bought everything from clothing to furniture?
Today, that’s Amazon (NASDAQ:AMZN).
Macy’s was founded in 1929 and it hit its best before date in July 2015. With in-store sales slumping and earnings down, shares in Macy’s dropped nearly 47% in the second half of that year.
A period of cost-cutting, store closures and e-commerce investment followed, but it has been a rapid decline since then. M stock started 2020 at $16.52, down 77% from its July 2015 peak. Since then? With the coronavirus pandemic shuttering its stores and consumers buying virtually everything online from Amazon, Macy’s shares closed at $6.17 on Tuesday.
Rival department store chains Neiman Marcus and JCPenney (OTCMKTS:JCPNQ) have already declared bankruptcy, the coronavirus pushing them over the brink. Macy’s is in serious danger of meeting the same fate. As such, M stock is one of the stocks investors should sell immediately.
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.
