With millions of corporate employees still working from home, the inflationary spike in gasoline prices might not have had the same shock value if the coronavirus pandemic never happened. However, with everything rising in cost — and some in-demand products not available altogether — no American has been able to avoid the impact of troubling economic indicators. Naturally, this sets the stage for considering stocks to sell.
If that wasn’t bad enough, Wall Street analysts were caught off guard with the latest read on consumer prices. Previously, the benchmark consumer price index hovered around 7% on a year-over-year basis. But in January, this figure jumped to 7.5% YOY, stemming from an increase of 0.6% over the prior month. Unsurprisingly, the biggest annual increase in inflation in 40 years has many folks thinking about stocks to sell.
To be fair, investors shouldn’t panic. Further, contrarian analysts suggest that this might be a time to consider getting into the equities market. Some of the core reasons include that supply chain issues that have dogged the global economy are fixable problems. As well, with the federal government signaling an end to stimulus, people don’t have extra cash to swing around, necessitating a careful approach to stocks to sell.
However, the big wild card in my view is Russia. As I noted a few weeks ago, the defense sector seems to be one of the few places where investors can accrue solid returns in an otherwise chaotic environment. Still, tensions have ratcheted up recently, leading to an extremely unpredictable and dangerous situation. Thus, I think it’s smart for investors to consider certain stocks to sell.
Based purely on market sentiment, geopolitical circumstances and global central bank responses to economic dynamics, you may want to think about exiting from the following stocks:
- Mechel (NYSE:MTL)
- Sberbank (OTCMKTS:SBRCY)
- Alibaba (NYSE:BABA)
- Air China (OTCMKTS:AIRYY)
- Bank of China (OTCMKTS:BACHY)
- Harley-Davidson (NYSE:HOG)
- Western Union (NYSE:WU)
Please keep in mind that I don’t “hate” any of these stocks to sell, nor am I benefitting in any way if these securities encounter a correction. Rather, I’m presenting ideas to give a heads up to investors. As always, you must conduct your due diligence before moving forward.
Stocks to Sell: Mechel (MTL)
First on this list of stocks to sell is Mechel, which is one of Russia’s leading mining and metals companies. The business consists of producers of coal, iron ore in concentrate, steel and rolled steel products. Ordinarily, I might have suggested the bullish concept of acquiring MTL shares on the basis that industrial commodities will be necessary to build out next-generation infrastructures.
But there’s this little thing going on with Ukraine. As I mentioned in my prior InvestorPlace article, a Russian invasion would constitute the biggest military action in Europe since World War II. And while the U.S. and NATO may talk tough about sanctions, I’m not entirely sure that’s a deterrent. But the concept of western powers sitting on the sidelines might not be a tenable situation.
There may be up to 20,000 U.S. citizens in Ukraine right now. If any of them are killed during an invasion, the Biden administration will likely be forced to respond with severity. Without such a response, the outrage from the American public will not only result in President Biden failing to win reelection, the Democrats would be set for devastating losses — forever branded as cowards.
Either way, MTL would be caught in the crossfire, making it one of the “easier” stocks to sell.
As I said above, I don’t have a whole lot of hope that the threat of sanctions will deter Russian President Vladimir Putin from taking the irresponsible action of a military invasion of a sovereign country. At the same time, I don’t think this is a matter that the U.S. and NATO can just watch from the sidelines.
Let’s just be brutally honest. If Russia invades, the Ukrainians are not just going to die conveniently. Millions will pour into neighboring countries, presenting one of the biggest humanitarian crises ever. In other words, if an invasion occurs, the possibility for the situation to escalate beyond the scope of what the west and Russia earlier expected could be quite high.
And that brings me to Sberbank, a state-owned Russian banking and financial services company headquartered in Moscow. Naturally, the first response the U.S. must make is to impose the mother of all crippling sanctions on Russia. This includes cutting the entire country off from global financial networks, which would likely be detrimental to Sberbank.
With escalating risks in eastern Europe, SBRCY is an easy name to throw in regarding stocks to sell.
Stocks to Sell: Alibaba (BABA)
Frankly, I hesitated to include Alibaba on this list of stocks to sell. For one thing, the company has already suffered a severe deflating of its market value. Over the trailing six months, BABA is down 36%. Over the trailing year, it’s tanked over 54%.
Usually, at such junctures, shares tend to jump higher in response, almost as if to spite the bears that obviously have fundamental justification for their pessimism. So I’ll freely admit that shorting BABA is dangerous. However, you might not want to consider weaning off exposure.
As the New York Times explained, both China and Taiwan are watching the U.S. response to Ukraine. If it merely imposes what may eventually be proven teethless sanctions, then China’s calculus may point to a rational justification for invading Taiwan.
“’If the Western powers fail to respond to Russia, they do embolden the Chinese thinking regarding action on Taiwan,’ said Lai I-chung, the president of the Prospect Foundation in Taiwan’s capital, Taipei, and former director of the China Affairs department for the ruling Democratic Progressive Party.”
That’s where Americans’ concern should be. If the Biden administration lets Ukraine fall, then it’s giving China a green light to do whatever it wants to do.
Air China (AIRYY)
As the flag carrier for China and one of the big three Chinese airlines, Air China presents an intriguing situation regarding stocks to sell. On paper, it seems imprudent to be bearish on it. On a year-to-date basis, AIRYY is up 23%, whereas in the trailing month, it has gained 12.5%.
Some of the enthusiasm could be due to the world’s attention turning toward the Winter Olympics in Beijing. True, foreign spectators can’t attend the games due to the threat of the omicron variant of Covid-19. But in theory, the tournament provides an international showpiece, thus drawing attention for tourism to China once the pandemic fades.
Well, the crisis in eastern Europe could change the calculus for Air China — and not in a good way. If Russia invades Ukraine and if the U.S. does nothing (except sanctions), the best chance for China to invade Taiwan is before former President Donald Trump (assuming he avoids legal troubles) takes over the White House in 2024.
Stocks to Sell: Bank of China (BACHY)
With the geopolitical situation the way that it is now, it’s probably a good idea to put Bank of China in your list of stocks to sell.
You might view the eastern Europe threat as merely Putin’s grandiose trolling of the western world. Let’s hope so. But the idea that armed conflict in Europe could lead to China taking over Taiwan is no laughing matter. For decades, Japan has stayed out of the debate due to geopolitical sensitivities. But Beijing’s posture was enough for the Japanese government last year to state that it must actively protect Taiwan.
That’s a massive shift in foreign policy but arguably a necessary one. Taiwan is a leader in the global information and communication technology industry. Further, the small island territory is surrounded by key shipping lanes. Indeed, it’s not entirely out of the question for China, in an invasion of Taiwan, to attack nearby Japanese islands, choking off these vital lanes.
Unfortunately, this means that our two biggest adversaries are calling our bluff. Perhaps the biggest danger to U.S. national security is that the Russians and Chinese are willing to die for their respective countries for pennies on the dollar. Whatever the case, the potential for things to get out of hand means you should probably avoid BACHY.
As an American classic, it’s not wise to say anything imprudent about Harley-Davidson so I won’t. Nevertheless, I’m adding HOG on this list of stocks to sell, not out of any ill will toward the company but rather due to timing concerns. In other words, it’s a great time to sell into strength.
As you may know, HOG stock soared recently based on a surprise fourth-quarter profit. Per MarketWatch, “Net income totaled $21.6 million, or 14 cents per share, after a loss of $96.4 million, or 63 cents per share, last year. Adjusted EPS of 15 cents was well ahead of the FactSet consensus for a loss 34 cents.”
But how sustainable is this rally? Arguably, Harley-Davidson’s pivot to electric transportation is compelling. For one thing, electric bike sales soared when the pandemic started. Further, the modern generation cares about environmental issues. Finally, the company’s e-bikes for kids is a hot-selling category.
Still, Harley’s bread and butter remains its traditional motorcycles, which is where I’m hesitant. Even if the company is doing well with e-bikes now, competition is never too far away. Also, HOG is down 27% over the trailing five years, confirming how difficult the motorcycle business is during the age of millennials.
Stocks to Sell: Western Union (WU)
You know who might be sweating bullets right about now? Western Union executives. If the geopolitical landscape results in those bullets becoming literal as opposed to merely metaphorical, Western Union is going to potentially suffer an immediate loss of business to key partners.
For one thing, a Russian invasion of Ukraine will effectively cut transactions to both countries: Russia due to the sanctions that would be coming its way and Ukraine due to consumer fears of destabilization. However, that would be the easier of the two scenarios everyone’s focusing on.
The other, as I mentioned earlier, is a potential invasion of Taiwan by China. I’m not sure what the appetite for conflict in the region is, either, considering that it would probably start a third world war. Certainly, though, if China acted unilaterally to annex Taiwan, financial penalties will hit the second-biggest economy in the world, potentially posing huge headwinds for Western Union.
Of course, I’m hoping that none of these doomsday scenarios occur. But as tensions in Europe rage, it’s well within reason for events to cascade like dominoes, thus making WU one of the stocks to sell.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.