Buy low, sell high. Don’t fall in love with stocks to sell. Don’t be a Scrooge at Christmas. (Not until you’ve seen the ghosts.)
These are hoary clichés because they’re true. The pandemic year of 2020 has been very good for some stocks, and 2021 might not be quite so good. Why not think of selling some and plowing that money back into the economy in the form of Christmas presents?
Beats borrowing.
The stocks to sell in this gallery are good companies. These aren’t dogs of the Dow. They’re all solid for the long term, but in the short- to medium-term, say over the next year, they may not win the favor they have now. They may even fall.
That’s why you may want to sell them. Maybe not all of them. Maybe trim a little here, a little there, then be generous to family, to charities, and to a world that needs it as this year ends.
- Moderna (NASDAQ:MRNA)
- Walmart (NYSE:WMT)
- Novavax (NASDAQ:NVAX)
- Beyond Meat (NASDAQ:BYND)
- Tesla (NASDAQ:TSLA)
- Zoom Video (NASDAQ:ZM)
- Costco Wholesale (NASDAQ:COST)
God bless us, every one!
Moderna: Take Your Victory Lap and Sell
Moderna said its vaccine is 94.5% effective against COVID-19 .
Investors who followed my advice from last December to buy Moderna for its Messenger RNA technology should now take some profits. Shares are up 549% year-to-date.
Moderna now has an important proof of concept, a runway for more growth. As I wrote at the time of the IPO, “Moderna is less a bet on particular drugs than on a method for finding them.”
The apparent success of mRNA-1273, Moderna’s candidate vaccine, in preventing infection means their drug discovery system works. Of 95 people in the study who contracted COVID-19, 90 were taking a placebo.
But the current valuation of Moderna, $36.7 billion, is out of line with any COVID-19 revenue stream. Moderna won’t be manufacturing or administering the drug. Prices will be controlled by existing contracts. Even Moderna CEO Stephane Bancel says mRNA-1273 isn’t a “silver bullet.” Masks and social distancing will be required for some time.
Moderna reported revenues of $158 million for the third quarter. The release described dozens of other drugs beyond the vaccine. They include cancer drugs that can be injected into tumors, vaccines to treat rare diseases, and a drug to treat heart failure called Relaxin.
Some represent partnerships with companies like AstraZeneca (NYSE:AZN) and Merck (NYSE:MRK), from whom Moderna received funding before it came public. Others represent the company’s own efforts. All of them must still go through clinical trials, approvals, and manufacturing before they generate income.
The difference is that instead of being funded by diluting shareholders or pre-selling rights, these drugs may now be funded directly by Moderna. Moderna may also work with other drug companies as the senior partner funding research instead of the junior partner seeking funding.
Though it’s on this list of stocks to sell, you don’t need to sell all your Moderna stock. This is the climax of one story, but it’s just the first chapter for Moderna. As I said a year ago, you want to be there as this book is written.
Walmart: Sell into Strength
One of the stocks to sell on this list, if I were lucky enough to own it, would be Walmart.
Walmart had sales of $523 billion last year. It’s on pace to do $542 billion. That $19 billion gain represents less than 4% growth. Say it has a spectacular Christmas with sales of $148 billion, a total of $550 billion. That’s 5.4% growth. Large numbers are hard to shift.
Now look what people are paying for mid-single-digit growth. Walmart opened for trade Nov. 16 at $152, a market cap of nearly $430 billion. That would be nearly 80% of even the high sales estimate. The 54 cent per share dividend, once seen as generous, now yields barely 1.4%. Shares are up 27% this year.
The company is doing great. The investors? Not so much, because big numbers are hard to shift.
If you do decide to pick Walmart in your stocks to sell, there will be many people happy to take the stock off your hands.
As many as 19 million families may have already joined Walmart+, the company’s answer to Amazon (NASDAQ:AMZN) Prime. It costs $98 per year, so the bulls see up to $1.86 billion in “free” money, although Walmart must build out its infrastructure to meet the promise.
Placer.ai says Walmart visits have been rising steadily since the pandemic started, especially at its Sam’s Club warehouses, where people buy more at each visit. Time spent per visit is also rising, so Walmart per-ticket sales may also be growing.
Of the 27 analysts following Walmart, 21 now have it on their buy lists. The average one-year price target from those bullish Walmart analysts is $150.78, a buck or so below where it is trading today.
As the pandemic returns with a vengeance, Walmart is once again metering how many people come into the store at once. The aim is to run at 20% of capacity. There is also evidence that shoppers are returning to panic mode, buying out supplies of things like toilet paper.
Christmas may not be as merry as you think at Walmart. This may be as good as it gets for some time.
Novavax: You Ran the Race, Now Sell
Few companies have done as well for investors in 2020 as Novavax.
The stock began the year below $5/share. Then COVID-19 came to America.
Novavax is a vaccine specialist. It quickly issued a press release saying it had a vaccine candidate called NVX-CoV2373.
Novavax is one of several companies pursuing a COVID-19 vaccine under the Administration’s “Operation Warp Speed” program.
Before COVID-19 arrived, Novavax’ ResVax vaccine failed in two separate Phase 3 trials. The first, in 2016, resulted in the company laying off 30% of its employees. The second resulted in a 1:20 reverse stock split, which let it keep trading.
Whenever the company gets some good news, CEO Stanley Erck does an equity raise. He announced another in November for $500 million. He has become a regular guest on TV and recently did his own equity raise, selling 29,112 shares at about $110, netting $3.2 million.
What Novavax mainly has is an adjuvant. It’s called Matrix-M, and it was acquired with a Swedish company in 2013. An adjuvant increases the potency of a medicine, allowing more people to be treated.
This let Novavax quickly win a production contract in India for up to 1 billion doses.
Novavax’ says its vaccine can be stored with existing refrigeration technology. This assumes, of course, it works.
Novavax has gone to some lengths to keep the stock afloat, releasing details of a federal contract ahead of the government giving its vaccine candidate “fast track” designation. That happened because its federal contract isn’t with the government. It’s being done through a third party, Advanced Technology International, designed to get around disclosure laws.
Given how dependent the investment case for Novavax is on a single vaccine and government largesse, it’s remarkable the stock has done so well. But the good times are no longer rolling. Shares peaked in mid-August at over $170 and have generally headed lower since.
If I had a profitable position in Novavax, I would sell it.
Beyond Meat: A Valuation Beyond Perilous Means Sell
Would you pay 30 times revenue for a money-losing “growth” company that was no longer growing?
Neither would I.
But that’s what shareholders of Beyond Meat have after it reported a loss of $19.3 million, 31 cents per share, for the quarter ending in September. Sales came to $94.4 million, up just 2.7% from a year earlier.
If you’re sitting on a profit, and have a queasy stomach, it may be time to get off this ride.
The Financial Times called the quarter “beyond awful.” Other analysts noted that Beyond Meat has no moat, no protection against competitors. There are lots of other faux meat companies out there, starting with Nestle (OTCMKTS:NSRGY) and Impossible Foods, which is expected to go public next year.
Beyond Meat hit the public market first. It was a pure play, the only way for investors to get into an exciting trend.
There are reasons for hope. Beyond Meat has new distribution agreements with CVS Health (NYSE:CVS) and YUM! Brands (NYSE:YUM) Pizza Hut. McDonalds (NYSE:MCD) said Beyond Meat was involved in its coming McPlant burger.
Beyond Meat also has two new formulations. One makes for a juicier burger. The other makes for one lower in saturated fat.
There’s also a new Beyond Pork launching in China designed to mimic the flavors found in dumplings and spring rolls. African swine fever means pork is in short supply in the world’s largest pork market.
There also remain many meatless meat niches beyond ground beef, pork, and sausage. When Beyond launched a faux chicken at a Kentucky Fried Chicken stand near Atlanta, it sold out in hours.
The good news is that plant-based meat is a thing. The bad news is that the current stock price has no relation to reality. There’s competition coming from every direction, from supermarkets like Kroger (NYSE:KR) to meat companies like Hormel Foods (NYSE:HRL), makers of Spam. (I happen to like Spam.)
Scaling is key. Fake meat still costs more than the real thing. Until that changes, Beyond Meat stock is among stocks to sell. It’s a hamburger, not steak.
Tesla: Elon Musk Is Human, So Sell
While Tesla bulls were celebrating its coming inclusion in the S&P 500 with its institutional buying, founder and CEO Elon Musk announced he has coronavirus.
Musk is 49 and in generally good health. His weight is listed at 180, but recent pictures show him to be huskier. Musk has expressed skepticism about his diagnosis, but the virus doesn’t care.
Musk is as vital to Tesla as Steve Jobs was to Apple (NASDAQ:AAPL) in the late 2000s. Jobs was diagnosed with pancreatic cancer when he was 49. There is no clear line of succession at Tesla, as there was with Tim Cook after Jobs got sick. Tesla is even more dependent on its founder than Apple was on Jobs.
Meanwhile Tesla goes from strength to strength. It will survive despite being on any list of stocks to sell.
The reason is Tesla’s hold on the battery market. Tesla’s “Battery Day” announcement of a new “tabless” design that could cut the cost of a Tesla car to $25,000 has blown the industry away. No one doubts Tesla’s ability to scale production anymore, as I did in 2018.
That’s why investors are ignoring China’s recall of 50,000 Teslas with bad suspensions. They’re ignoring the fact that China hates other companies controlling its market, especially American firms like Tesla. They’re ignoring Germans’ resentment of its Berlin Gigafactory, and the firing of its designer.
Tesla has made a lot of people rich beyond Elon Musk. The company’s value has more than quadrupled this year as its control over new car markets, and the energy market, has become clear.
But Tesla is still Elon Musk. There is no back-up plan, as there was at Apple. I wish ill on no one, but as an investor I always have a back-up plan.
If you have made a killing on Tesla, I wasn’t as smart as you are. But it still makes sense to be diversified, which is why Tesla is on this list of stocks to sell. Don’t be dependent on any one investment. Take some profits.
Zoom Video: Join the Smart Money and Sell
Advisors like to tell clients to rotate investments. Get into the new, get out of the old with stocks to sell. Seek value and income, not just capital gains. Diversify.
Stock buyers also rotate. First come the speculators, then the momentum traders. When the momentum is gone you see the growth investors. If the company is good enough for long enough, value investors come in.
Zoom illustrates the pattern. The speculators have gotten out, and now too the momentum traders. Analysts want to see what investors will pay for Zoom’s growth. They want to see how much there is. Value is a long way off.
Zoom last reported results at the end of August. Revenue was $663 million, with non-GAAP net income of $275 million, 92 cents per share. The company next reports November 30. Analysts expect 75 cents per share of net income on revenue of $695 million. They’re hoping for 99 cents.
To speculators, this means growth is slowing, time to get out. Zoom has been the unquestioned star of the COVID-19 pandemic. In less than one year after its public offering it’s become a verb. People zoom like their parents googled and their grandparents xeroxed.
That’s an immense advantage.
On the other hand, the posse is after Zoom like it stole something.
Cisco Systems (NASDAQ:CSCO) began offering teleconferencing in 2006. The company bought a scaled-down version called WebEx in 2007 and is now promoting it heavily. If you watch CNN, their regular interviewees are all on WebEx. (Zoom founder Eric Yuan left WebEx to start Zoom.)
Alphabet (NASDAQ:GOOGL) is pushing its Google Meet system hard. When I tried to start a Zoom last week with a great ADHD camp and school I support, Google tried to switch the call to Google Meet.
Then there’s Microsoft (NASDAQ:MSFT) Teams and Apple (NASDAQ:AAPL) FaceTime. If you’re in those ecosystems, they want to drag you in.
Zoom is free, ad-supported, and made to be easy. It’s available on every device, runs in the cloud, and there’s no lock-in. That’s the secret sauce.
Trouble is it’s no longer secret. Zoom will survive but the next year will be difficult for the stock.
Sell Costco? Heresy!
I love Costco.
I regularly drive 10 miles out of my way to a Costco, bypassing a Sam’s Club along the way. My credit card says Costco. It took me months to spend the cash reward they gave me right before the pandemic hit.
So the idea of selling Costco shares, especially with a $10 special dividend coming Dec. 11, to shareholders of record Dec. 2, will sound like heresy.
But you can fall in love with a store without falling in love with its stock, which is why COST is among stocks to sell.
Costco has been a huge winner during the pandemic, as its most recent quarterly report shows. Sales for the summer quarter were up 14.1%, adjusted for gas prices and foreign exchange. Online sales increased 91.3% year-over-year.
Small wonder the shares are up 32% on the year, while the average S&P stock is up just 11.7%. Even taken over five years the 134% gain in Costco has nearly doubled the 74% gain in the average stock.
But the shares are now more than fully valued. The market cap on Nov. 18 was $168 billion, higher than last year’s revenue of $166 billion. The price to earnings ratio is a startling 43x, higher than Microsoft (NASDAQ:MSFT) or Apple (NASDAQ:AAPL). The regular dividend of 70 cents per share yields less than 1%. Add in the special dividend and the yield this year is 3.3%.
Part of Costco’s appeal is that the store runs at near break-even. Net income for the company during the last year was $4 billion. Memberships brought in $3.5 billion. When Costco next reports earnings on Dec. 10, analysts are expecting it to earn just $2/share. They’re hoping for $2.25 but that still won’t come close to the last quarter’s $3.14.
It costs $100 million to open a new Costco warehouse, so Costco opens them judiciously. Its Web site lists five store openings through February, only two of them inside the U.S.
The smartest man in the room remains Warren Buffett of Berkshire Hathaway (NYSE:BRK.A). We all know that. He sold out his 4.3 million Costco shares during the third quarter. Over the last six months, Costco’s performance has only kept pace with the average S&P stock.
If you’re looking out 5-10 years, Costco remains a great investment. But if you’re going to raise cash this Christmas, you dump your winners and pick up the next wave. Costco is a $166 billion business and needs to be a $181 billion business during 2021 to keep up its current 9% growth rate.
When smart people look at stocks to sell for riskier investments, Costco will come back to Earth. You can buy more then.
At the time of publication, Dana Blankenhorn had long positions in AAPL, MSFT and AMZN
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn.
