Investors sometimes pull the trigger and sell shares in their portfolios. One of the most important reasons would be when a stock does not meet the initial purchase criteria any more. Investors may also want to raise cash to pay for another personal purchase or investment. Or a shareholder could decide ring the cash register to take profits when an investment has gone well. Overall, whatever the reason is, let me introduce seven stocks to sell as we wrap up the last month of the year.
In a research paper published in May on the potential effects of the pandemic on U.S. stock prices, the authors suggested an interesting take on the situation:
“For instance, ‘bad’ news inherent to the US climbing COVID-19 infected cases, deaths, governments’ distancing guidelines as well as oil price movement shocks may be perceived differently by market traders. Bad news may induce short-term traders to sell, while long-run traders may perceive the same news as a buying opportunity with the perception that such news would have a transitory bearing on the market.”
In fact, when the markets plunged in February and March, panic set across the board. And it was not quite possible to tell how long the downtrend would last. As a result of the rapid declines, valuation levels became rather attractive for many robust shares.
Since then, though, many stocks have not only recovered most of their losses, but have also made new 52-week highs or even hit record prices. So if you are one of these shareholders with paper profits in some of your portfolio holdings, now may be a good time to revise your investment objectives and to take some money off the table.
With that said, here are seven stocks to sell for December whose valuations have gone up high:
- Bright Horizons Family Solutions (NYSE:BFAM)
- Disney (NYSE:DIS)
- Dycom Industries (NYSE:DY)
- Estee Lauder (NYSE:EL)
- EMCOR (NYSE:EME)
- ETFMG Alternative Harvest ETF (NYSEARCA:MJ)
- Goosehead Insurance (NASDAQ:GSHD)
Now, let’s dive in and take a closer look at each one.
Stocks to Sell: Bright Horizons Family Solutions (BFAM)
52-Week Range: $64.23 – $177.16
Year-to-Date (YTD) Change: Up 13.4%
Dividend Yield: N/A
Watertown, Massachusetts-based Bright Horizons Family Solutions provides a number of different services, including child care and early education. In addition to operations stateside, the group serves customers in a number of different countries like the U.K., the Netherlands and India.
Moreover, the group released third-quarter earnings in early November. Revenue of $338 million meant a 34% decrease YOY. Management highlighted that the group had to temporarily close child care centers in the height of the pandemic.
Additionally, net loss was $6.7 million compared to net income of $41.3 million in the same period of 2019. Diluted adjusted earnings per share (EPS) was also 2 cents, while a year ago it had been 86 cents.
However, although CEO Stephen Kramer sounded optimistic about the prospects of re-opening facilities, management could not provide guidance for the rest of the year.
Collectively, BFAM stock boasts forward price-earnings (P/E) and price-sales (P/S) ratios are 33.22 and 6.17, respectively. The second wave of the virus is going on not only in the U.S., but also worldwide. Thus, I believe it is time to take some money off the table.
Disney (DIS)
52-Week Range: $79.07 – $151.86
YTD Change: Up 4.2%
Dividend Yield: N/A
The next of our stocks to sell is Disney. And as a worldwide family entertainment company, the group needs no introduction.
Earlier in November, it released fiscal year 2020 Q4 and full-year earnings results. Total revenue for the year ended Oct. 3 came in at $65.4 billion. It was down 6% YOY from of $69.61 billion a year ago. As a result, EPS was $2.02, while it had been $5.76 in the prior year. Also, free cash flow was $3.59 million — up from $1.11 million last year.
Overall, Disney reports revenue for four business segments: Media Networks; Parks, Experiences and Products; Studio Entertainment; and Direct-to-Consumer and International.
Management noted that during the quarter, the Parks, Experiences and Products division has been adversely affected since its parks and resorts have been closed or operating at significantly reduced capacity and the cruise ship sailings have been suspended. In fact, quarterly net loss was $710 million, whereas Disney reported net income of $777 million a year ago.
However, it was not all dark and gloomy. CEO Bob Chapek said, “…and on this anniversary of the launch of Disney+ we’re pleased to report that, as of the end of the fourth quarter, the service had more than 73 million paid subscribers – far surpassing our expectations in just its first year.”
During the month of November, DIS stock gained 22%. Also, forward P/E and P/S ratios stand at 66.67 and 4.12, respectively. Even for a robust company with global brands, these metrics show an expensive stock. We expect short-term profit-taking in the stock, and a decline toward $125 is likely. Therefore, current shareholders may want to take some money off the table.
Stocks to Sell: Dycom Industries (DY)
52-Week Range: $12.24 – $78.71
YTD Change: Up 35%
Dividend Yield: N/A
Palm Beach Gardens, Florida-based Dycom provides contracting services including a range of planning, engineering and fulfillment services for telecommunications providers. Additionally, Dycom the group offers underground facility locating services for various utilities.
In late November, Dycom released its Q3 results. The contracting specialist beat profit expectations, but missed on revenue. Contract revenue was $810.3 million compared to $884.1 million a year ago. Moreover, non-GAAP adjusted net income was $34.4 million . Meanwhile, a year ago, it had been $28.1 million. Also, non-GAAP diluted EPS was $1.06 compared to 88 cents during Q3 2019.
Collectively, management was pleased with the results. However, they warned for the next quarter due to the impacts of the novel coronavirus on business. That said, Dycom shares have gotten crushed since reporting earnings — down nearly 20%.
Furthermore, forward P/E and P/S ratios are 15.36 and 0.64, respectively. That said, I believe the stock could make another move down below $60 toward $55.
EMCOR (EME)
52-Week Range: $41.85 – $90.84
YTD Change: Up 1.1%
Dividend Yield: 0.36%
Norwalk, Connecticut-based EMCOR is a Fortune 500 company. It provides mechanical and electrical construction services, industrial and energy infrastructure and building services.
That said, EMCOR reported mixed Q3 results in late October. Revenue beat expectations, falling only 3.8% YOY to $2.20 billion. However, adjusted net income was $61.2 million, a 25% decrease compared to $81.8 million a year ago.
Moreover, non-GAAP diluted EPS was $1.76, and operating cash flow of $270.1 million was an increase of 23.3% YOY. Following the results, EME stock has risen since then — even with a low dividend yield.
Tony Guzzi, chairman, president and chief executive officer of EMCOR, said this about the results:
“While impacts related to the COVID-19 pandemic are ongoing, we are cautiously optimistic about demand recovery as our remaining performance obligations increased 12.3% year-over-year, underscoring the resiliency of our business and the markets in which we operate.”
Additionally, trailing P/E and P/S ratios stand at 35.67 and 0.54, respectively. Considering how far the shares have gone up since the lows seen in March, it is time to take profits in EME stock. And this is because a decline toward $80 is likely.
Stocks to Sell: Estee Lauder (EL)
52-Week Range: $137.01 – $259.77
YTD Change: Up 19.6%
Dividend Yield: 0.86%
As a leading manufacturer of quality skin care, fragrance and hair care products with over 25 well-known brands, Estee Lauder needs little introduction. Several of those brands InvestorPlace.com readers would be well familiar with include Estee Lauder, MAC, Clinique, Tommy Hilfiger, Ermenegildo Zegna and DKNY.
The group released Q1 results for the quarter ended Sept. 30 in early November. Sales of $3.56 billion represented a 9% decline YOY from $3.90 billion a year ago. Management highlighted temporary retail store closures and lower foot traffic due the pandemic. Yet, investors were pleases to see of the decline was offset by strong growth online.
Moreover, net earnings came at $523 million — a YOY 12% decline compared with $595 million a year ago. Adjusted EPS of $1.44 showed a 14% decrease from the previous year.
Fabrizio Freda, president and CEO of Estee Lauder, said, “We are confident in the long-term growth opportunities for global prestige beauty and for the Company, reflected in our announcement today to raise our quarterly dividend by 10%.”
Also, EL stock’s forward P/E and P/S ratios are 48.54 and 6.48, respectively. The shares have gone up quite significantly in recent weeks. However, current shareholders may want to ring the cash register as a decline toward $230 may be in the cards.
Stocks to Sell: ETFMG Alternative Harvest ETF (MJ)
52-Week Range: $8.81 – $19.33
YTD Change: Down 11.5%
Dividend Yield: 8.23%
Expense Ratio: 0.75%
Our next discussion centers around an exchange-traded fund (ETF), namely the ETFMG Alternative Harvest ETF. The fund provides access to businesses benefiting from global medicinal and recreational cannabis legalization initiatives. Put another way, it does not invest in any U.S. or overseas firms whose business activities would be illegal under the law.
The fund, which has 33 stocks, tracks the Prime Alternative Harvest index. The top ten holdings comprise more than 50% of total net assets of $565.69 million. MJ’s top five companies — in no particular order — are Aphria (NASDAQ:APHA), GW Pharmaceuticals (NASDAQ:GWPH), Canopy Growth (NYSE:CGC), Cronos (NASDAQ:CRON) and GrowGeneration (NASDAQ:GWRG).
Additionally, sector allocation for MJ is quite diverse. This includes Cannabis Production (44%), Agricultural Sciences & Regulated/Tobacco Products (26.5), Pharma & Biotech (13.8%), and Equipment & Hardware (6.0%), among others.
So far in the year, MJ is down about 12%. However, since the March low, the fund is up more than 52%. And since the end of October, it has returned around 41 — buoyed by the possibility of federal-level marijuana legalization in the U.S in the coming years. Thus, it might be time to take some of those paper profits.
Stocks to Sell: Goosehead Insurance (GSHD)
52-Week Range: $37.26 – $131.64
YTD Change: Up 173.9%
Dividend Yield: N/A
Westlake, Texas-based Goosehead Insurance is an independent personal lines insurance agency. It went public in April 2018 at an opening price of $12. Now, it is shy of $120.
It released Q3 results in late October. Revenue was $32 million, a 51% YOY increase from $21.2 million a year ago. Adjusted net income of $6.7 million meant a huge 243% increase compared to $2.8 million in 2019. Also, non-GAAP adjusted EPS was 23 cents.
Furthermore, Mark E. Jones, chairman and CEO of Goosehead said this about the earnings:
“Goosehead delivered another phenomenal quarter with sustained high levels of growth, profitability, and high retention driven by world-class client service… Given the strength of our results through the first nine months of the year, we are pleased to raise our full-year outlook for total written premium and revenue.”
Forward P/E and P/S ratios are 136.99 and 22.47, respectively. Despite the growth in revenue, these valuation levels are hard to justify. Thus, I would look to buy the stock in the case of a short-term decline toward $100, or even below.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil Ph.D. has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination.
