Despite serious turbulence, 2020 has been a great year for investors. But even as market indices like the S&P 500 (NYSEARCA:SPY) remain near all-time highs, it may be time to realize gains, and sell strong performing stocks before the end of the year.
Sure, a majority of Wall Street analysts surveyed by CNBC predict further gains in 2021. But that doesn’t guarantee the coming year will be another banner one for stocks. With valuations stretched (especially in tech), and a Covid-19 recovery priced-in, a sell-off or correction could be on the horizon.
That’s not say markets will crater back to their March lows. But if investor enthusiasm wanes in the coming year, expect many of this year’s winners to trade at lower prices than they do today.
With this in mind, it may be wise to take the money and run with these 9 strong-performing stocks to sell before the end of the year:
- American Airlines (NASDAQ:AAL)
- Beyond Meat (NASDAQ:BYND)
- First Solar (NASDAQ:FSLR)
- Landcadia Holdings II (NASDAQ:LCA)
- Nike (NYSE:NKE)
- Palantir (NYSE:PLTR)
- Starbucks (NASDAQ:SBUX)
- Tesla (NASDAQ:TSLA)
- Wayfair (NYSE:W)
Yes, many remain great long-term opportunities. But as uncertainty still lingers over the markets, a bird in one hand may be worth two in the bush. There’s no harm taking a little risk off the table.
Stocks to Sell Before The End of The Year: American Airlines (AAL)
Sure, with the rapid progress in making novel coronavirus vaccines widely available in the U.S., hard-hit travel stocks like American Airlines are inching closer towards recovery mode. But while 2021 may bring improvements to airline traffic, we aren’t out of the woods just yet.
Based on TSA checkpoint numbers, air traffic is only back to roughly 30% to 40% of 2019 levels. And, while American Airlines’ cash burn isn’t as bad as it was back in the spring, it’s still running high. Average daily cash burn for the quarter ending December 31 is projected anywhere from $25 million to $30 million per day.
Despite the long road back to the “old normal,” investors have continued to value AAL stock as if it’s in full-on recovery mode. After falling to single-digits at the height of lockdowns, shares made a premature recovery in June, before settling between $10 and $15 per share.
For those who bought when things looked grimmest, you’ve seen some solid gains from holding onto AAL stock. But, as it remains a long road to full recovery for air travel, taking profits may be the best move today.
Beyond Meat (BYND)
There’s nothing wrong with buying a growth stock trading at a premium valuation. As long as it lives up to expectations. But what if said growth starts to fall short? That’s the main issue here with BYND stock.
After falling to prices near $50 per share, this purveyor of “plant based meat” saw its stock skyrocket through the fall, nearly reaching the $200 per share mark once again. But, after confusion over a potential supply deal with McDonalds (NYSE:MCD), investors started to lose faith in this “future of food” play.
That development wasn’t Beyond Meat’s only recent hiccup. Falling far short of consensus with its earnings, shares took another dive.
Sure, much of that earnings miss was due to pandemic headwinds. Declines in commercial food services sales outweighed growth in direct-to-consumer sales. However, if we see additional “bad quarters,” don’t expect today’s valuation to last.
Shares currently change hands at a price-to-sales ratio of 20.94. This frothy multiple is unsustainable if growth begins to slow down. Even if you bought in at higher prices, it may be time to cut your losses.
First Solar (FSLR)
Since President-elect Biden’s victory, solar and other “green wave” stocks have been on a tear. But while its shares rallied in the weeks preceding the election, investors in FSLR stock haven’t seen big gains since November 3.
The reason? While overall a Biden presidency bodes well for solar, other potential policies from the incoming administration could negatively affect performance going forward. Namely, the possible repeal of Section 201 tariffs placed on Chinese-made crystalline silicon PV modules. First Solar indirectly benefited from this tariff via an exemption on its thin film modules.
This potential headwind led to a downgrade by Raymond James back in November. Piper Sandler’s Kashy Harrison took a less bearish view on the stock, but shares similar concerns about the company’s ability to compete against Chinese rivals and improve its margins.
Although valuation doesn’t look too frothy (forward price-to-earnings, or P/E ratio, stands at 24x), the aforementioned uncertainty make this one of the many stocks to sell before the end of the year.
Landcadia Holdings II (LCA)
While it has its fair share of red flags (like the motivations of key insider Tillman Fertitta), I see an opportunity with LCA stock. This SPAC (blank-check company) is set to merge with privately-held online gaming (igaming) company Golden Nugget Online Entertainment, or GNOG, and has won the love of investors looking to wager on the future of online gambling in the United States.
But as our own Matt McCall wrote back on December 9, you should quit while you’re ahead with Landcadia Holdings II stock. That is to say, shares have soared thanks to the online gaming legalization megatrend. And while it’s found success in its home market of New Jersey, GNOG has little competitive advantage over its larger, better financed peers.
Lacking the cash to scale up (and sustain near-term losses while doing it), there’s not as much runway here when compared with rivals like DraftKings (NASDAQ:DKNG) and Penn National (NASDAQ:PENN). Not only that, with this hot sector fetching very frothy valuations, the current bubble in online gaming stocks could be vulnerable to a correction or a sell-off.
Back in mid-November, I was bullish on LCA stock. But now, with shares up nearly 50% in a month (even after the recent pullback), it looks like it’s time to take profits. Shares may be a great opportunity if they fall back to prior levels. But for now, sell it if you own it and avoid it if you don’t.
Like some of the other names listed here, Nike is a situation where valuation, rather than potential headwinds, is the main issue. As this Seeking Alpha contributor put it December 4, the company’s valuation is “running ahead of its fundamentals.”
How so? NKE stock sports a trailing twelve month (TTM) P/E ratio of 81.1x today. And although it’s showing strong signs of recovery, its projected growth doesn’t justify the current multiple. So why have investors been willing to bid up the athletic apparel giant nearly 35% since January, and well over 100% since March’s coronavirus crash?
Chalk up a lot of it to the “Robinhood effect.” Sure, users of the popular stock trading app are more interested in “hot” sectors like EVs. But as one of the most ubiquitous companies out there, it’s possible retail investors, dabbling in stocks for the first time, are following Peter Lynch’s old adage and “investing in what they know.”
But while they may know Nike, they may not know they are paying a substantial premium. In the near-term, this may not affect Nike’s stock price. But if and when Robinhood’s influence on this year’s runway bull market starts to fade, a major pullback could happen. With the stock near all-time highs, it’s time to sell.
Palantir is yet another name that’s benefited from recent political news. This big data company has deep ties with the Federal Government. And with the incoming Biden administrations, investors are betting big its public sector business will thrive over the next four years.
As a result, shares have soared since election day. Trading around $10.50 per share on November 3, PLTR stock now trades for around $26 per share. But, as I said on December 11, this stock’s recent hot run may start to cool in 2021.
Why? Firstly, shares could pull back if growth falls short of investors’ sky-high expectations. Secondly, the upcoming expiration of its lockup provision could mean a mad dash of insider selling. And thirdly, it’s questionable whether Palantir (which is largely a consulting company) can scale up the way a SaaS company can.
If you bought in when investors yawned following its direct listing, your contrarian buy proved shrewd in hindsight. But with Main Street and Wall Street pricing it to perfection, now’s the time to cash out: PLTR stock may give up much of its recent gains over the next twelve months.
Like Nike, SBUX stock is another name that’s possibly benefited from retail investors “buying what they know.” But with the company’s resiliency in light of the pandemic, the rapid recovery of its stock since March may be partially justified.
Not only has Starbucks stock bounced back from its Covid-19 lows; shares are up double-digits from where they were before the outbreak first started making headlines. But now, with its shares valued more like a FAANG company than a restaurant stock, it appears investors may have gotten ahead of themselves.
Granted, with sell-side analysts raising their price targets, there may be additional runway here. With earnings expected to bounce back to pre-pandemic levels in FY21 (year ending September 2021), and rising 20% the year after that, shares could continue to climb. Instead of stalling out, as the company grows into its current valuation.
Yet analyst price targets are largely at or slightly above its current trading price. Additional gains from here may be minimal. Given its status as a recovery play, along with its popularity among Wall Street and Main Street investors alike, I don’t see shares making a big reversal anytime soon. But a slight pullback could be in the cards for 2021.
“Never bet against Elon Musk,” the Tesla fanboys say. But after its incredible 665.7% rally in 2020, and its upcoming inclusion in the S&P 500 (NYSEARCA:SPY), the EV powerhouse’s shares may be running out of game-changing catalysts.
Yes, it’s been a losing proposition to be bearish on TSLA in 2020. No matter how detailed their analysis, the biggest critics of the stock have only big losses to show for it. But improvements in its underlying business aren’t the reason why shares have performed so well this year.
That is to say, speculation is the key factor behind the stock’s high triple-digit percentage return in 2020. Sure the company is now regularly profitable, as seen from five straight quarters of positive GAAP earnings. And with the pivot to EVs accelerating, sales are set to climb 46% in 2021.
Yet this hardly justifies its nearly nine-fold rally since March. If not improving prospects, what has driven shares higher? FOMO, momentum and other factors independent of fundamentals. But now, as “EV mania” loses steam, this may be as good as its going to get for TSLA stock. Consider this the “take the money and run” stock to beat all others.
As the “shop at home economy” continues through the holiday season, there may be more runway left for the strong performance of Wayfair stock. But while the home goods retailer has continued to surprise its critics, its current valuation is not sustainable.
What do I mean? W stock currently sells for around 60x earnings. That alone wouldn’t be a problem, if its earnings were set to rise significantly in subsequent years. But, as InvestorPlace’s Bret Kenwell wrote December 11, earnings are expected to be cut in half next year.
Simply put, this year’s results look to be a pandemic-driven “one-and-done” event. That’s not to say sales are going to fall back going forward. E-commerce isn’t going anywhere, even once the world gets over Covid-19. Consumer spending will continue to shift online. But the current valuation of W stock may be overestimating the impact of this megatrend.
With additional gains limited, and the possibility of big correction if results fall short of investor expectations, consider this another pandemic stock to bail out of before we close the books on 2020.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.