There are long-term plays that are cyclical, rising and falling as the economy expands and contracts. That’s why they deliver dividends, to cushion the slower times with a little bit more cash.
But there are also times when sector rotation takes hold, when industries’ glory days are coming to an end and investors aren’t leaving because things have slowed down. They’re leaving because things have moved on.
That’s what we’re seeing in some industries today, especially in the energy patch. It used to be that everyone owned an integrated oil company, it was like printing money. That’s no longer the case.
Here are 7 F-rated growth stocks to sell sooner than later:
- BP (NYSE:BP)
- Enbridge (NYSE:ENB)
- Las Vegas Sands (NYSE:LVS)
- TransDigm Group (NYSE:TDG)
- Phillips 66 (NYSE:PSX)
- Southwest Airlines (NYSE:LUV)
- ConocoPhillips (NYSE:COP)
The list of stocks to sell ahead has its share of oil giants, but there are other companies that have suffered because of the pandemic. Holding these shares and hoping for a better day isn’t going to help your portfolio. There’s too much opportunity out there to stick with these underperforming stocks.
F-Rated Growth Stocks to Sell: BP (BP)
Good old British Petroleum, one of the first companies to open up the Middle East oil fields, went on to become a global integrated giant back when the sun never set on the British Empire. BP stock was subsequently one of the best energy growth stocks on the market for decades.
Being an integrated oil company means you are involved in every aspect of the business. Upstream is exploration and production (E&P). Midstream means pipelines to get the oil and natural gas out of the fields and to storage facilities or refiners. Downstream includes the refining, distribution and eventual sale of processed petroleum products.
Being vertically integrated across all segments used to mean companies had more control over each aspect of the sector and could manage the cyclical nature of the business better.
The pandemic has changed all that. And as we’ve entered our new normal, online conferences are replacing flying to business meetings. Working from home is a huge trend and that means significantly less commuting. Plus electric vehicles are the hot new thing, inching ever closer to mass adoption.
Sure, BP is delivering an 8.9% dividend and it’s up 33% in the past three months. But it’s still down 44% from its 52-week high.
While ENB is a midstream Canadian company that has pipelines running into the U.S., it isn’t involved in the controversial Keystone XL project. But it does have pipelines running into and through a few Midwest states.
That’s bad news because the Biden administration isn’t a big fan of shipping tar sands oil or Canadian products through the U.S. when U.S. energy firms (and the banks that underwrite them) are hurting.
Plus, midstream companies are more toll takers in the energy business. They get paid by the volume of products that go through their pipes, so oil prices matter little. It’s demand that makes the business. And demand hasn’t been strong, and may well stay that way.
Between the regulatory challenges and the demand-side issues, this Canadian midstream player is going to find a hard row to hoe in coming quarters. The stock is down 16% from it’s 52-week high, so the 7.4% dividend yield is simply cold comfort.
Las Vegas Sands (LVS)
Big gambling resorts count on two things: volume and whales. The need lots of small players who spend their money buying food and entertainment. And they need the whales, the big gamblers who will spend more at the tables in a weekend than most people make in a year.
Neither of those groups are heading to Vegas, Macau or Singapore these days. The pandemic has hit business hard. Yes, at some point they will return, but like every other type of entertainment, LVS may lose some of its patrons to online gaming.
These meccas of glitz and glamor certainly will endure, but at what scale? The stock is down 23% from its 52-week high and a big comeback doesn’t look likely anytime soon.
TransDigm Group (TDG)
Given the widespread travel restrictions in place, it’s hard to be an airline company these days. But it’s also hard to be an airplane manufacturer. TDG makes the lion’s share of its money supplying parts and equipment to airplane makers. This is not a sector for growth stocks now or anytime in the near future.
Trans Digm is also involved in aerospace work, which is government work for the most part, although private aerospace firms seem to be the new hot thing. But it’s still limited work. It’ll certainly keep revenue flowing in, but it’s not going to put TDG into overdrive.
TDG started in 2003 from a merger among four smaller firms and it’s certainly a good-sized player in this market. But this isn’t the time to bet on big sales of new aircraft.
What’s more, the stock is off 4% but currently trading at a P/E ratio of nearly 74.
Phillips 66 (PSX)
In the world of integrated oils, PSX is a strange fish, with both midstream and downstream operations. While the company’s roots go back to 1907, these operations were spun off when the ConocoPhillips merger took place in 2000. PSX went back out on its own in 2012.
Its unique history and odd combination doesn’t make PSX any more of a growth stock than its larger brethren. If demand is low, the midstream market is weak. If demand is low, fuel sales are low. Also remember that selling gasoline is a low margin business at its best.
Adding to these challenges is the big move by institutional investors toward ESG (environmental, social and governance) investing. Institutions make up about 80% of the trading that goes on in the markets, so as they move toward greener, more open companies, it’s old energy companies that will take the hit.
The stock is off 20% from its 52-week high, so a 5% dividend doesn’t mean much.
Southwest Airlines (LUV)
While it’s one of the leading U.S. airlines and has always been a bit of an iconoclast in that industry, that hasn’t saved LUV from the pandemic. This is also an industry on the ESG investing hit list due to the significant carbon footprint of flying.
As oil prices rise, that means tighter margins for LUV and the rest of the industry. There are simply no growth stocks in this sector right now. Rising fuel prices mean LUV has to raise seat prices to make up for the costs and with fewer travelers that hurts demand, as most of its customers are leisure travelers at present.
This is a tough industry that’s even tougher these days. The stock is off 14% from its 52-week highs and will likely experience turbulence for a few quarters ahead. Buckle up.
As touched upon when discussing PSX, COP was formed during the merger of Conoco and Phillips around the turn of the 21st Century. COP is a global force with integrated operations in North America, but it tends to lean more heavily on E&P efforts in other parts of the globe.
The price of the dollar is inversely related to oil prices, since a weaker dollar means you have to spend more to get the same barrel of oil. If you look at oil prices, you’ll see that as the dollar has weakened, prices have risen.
This is important. Prices haven’t risen because demand is rising significantly. They’re rising because the dollar is weaker.
That’s a big difference. And it doesn’t help COP’s fortunes. Add ESG portfolio shifts and less travel and COP has serious headwinds. Off 25% from its 52-week high with a 3.9% dividend, this is more like Russian Roulette than it is bottom fishing.
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.
Disclosure: On the date of publication, Louis Navellier has no positions in the stocks in this article. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.