Although it’s not a topic that everyone loves to hear, the concept of stocks to sell is a necessary one. Fundamentally, with fears of a global recession rising, investors need to start preparing for the worst. Of course, they can target recession-resistant market ideas as an active measure. But sometimes, you just need to cut exposure to highly risky investments.
To be clear, I didn’t come up with this list of stocks to sell arbitrarily. Rather, I relied on Gurufocus.com’s screener, seeking what the platform considers some of its most dangerous trades. Whether financially unstable or lacking relevance (i.e. receding growth), these publicly traded securities are best left at the door.
Stocks to Sell: Zoom Video (ZM)
On paper, Zoom Video (NASDAQ:ZM) hardly seems an ideal candidate for stocks to sell. For instance, the company features a strong balance sheet, highlighted by a cash-to-debt ratio of 56 times. On the income statement, its three-year revenue growth rate ranks better than nearly 98% of the competition. As well, its net margin pings at 23%, above 93% of its rivals.
Nevertheless, if you place weight on what Citi analysts have to say, you might want to consider putting ZM on your list of stocks to sell. Primarily, Zoom suffers from a relevance problem. Back during the height of the pandemic, Zoom’s teleconferencing platform was all the rage. Today, with infection fears fading and perhaps up to 90% of companies requiring at least a partial return to the office in 2023, phoning it in has become so 2020.
Also, investors should pay close attention to the financials. Specifically, Zoom’s operating income has been gradually declining since posting $295 million in the quarter ended July 2021. First, it was a trickle and then came the downpour. You don’t want to short ZM but you also want to be extremely careful here.
Stocks to Sell: Alimera Sciences (ALIM)
Based in Georgia, Alimera Sciences (NASDAQ:ALIM) is another deeply challenged biopharmaceutical firm. Per its public profile, Alimera specializes in the commercialization and development of prescription ophthalmic pharmaceuticals. Again, the underlying science commands intrigue. Unfortunately, it’s just not translating to market nor fundamental success.
Let’s tackle the former first. On a year-to-date basis, ALIM slipped 14.5%. That’s not terrible considering that the benchmark equities index is down is down 17.5% during the same period. However, ALIM printed much of its volatility in recent sessions. For example, in the trailing month, the biopharma lost almost 19% of equity value.
Just on the Nov. 16 session alone, ALIM dropped over 9% based on its disappointing results for the third quarter. Broadly speaking, though, investors could see a list of warning signs, including the long-term erosion of its gross margin.
For me, I’m going to again point to the Altman Z-Score of 11 points below breakeven. This assessment indicates significant distress, making ALIM one of the stocks to sell.
Stocks to Sell: Ascent Solar (ASTI)
Headquartered in Thornton, Colorado, Ascent Solar (NASDAQ:ASTI) represents a photovoltaic company. Per its corporate profile, Ascent’s primary product is a flexible CIGS [copper indium gallium selenide] solar cell on a plastic substrate. Combining the two core fundamentals of climate change and a broader rethink of renewable energy, ASTI should perform well.
Unfortunately, it must belong to a list of stocks to sell because of the unusual risks. For instance, just in this year alone, ASTI hemorrhaged more than 83% of equity value. Now, to be fair, in the trailing five sessions, ASTI skyrocketed nearly 22%. Nevertheless, that’s an ugly stain since the January opener that’s (probably) not going to go away anytime soon.
Don’t get me wrong, I support the basic idea of smart speculation. However, the key word here is smart. Unfortunately, Ascent features one of the ugliest balance sheets I’ve seen recently. For example, its cash-to-debt ratio sits at 0.07 times, worse than over 96% of the industry. Also, its Altman Z-Score fell 66 points below parity.
Stocks to Sell: Origin Agritech (SEED)
Unlike the previously mentioned stocks to sell on this list, the immediate picture of Origin Agritech (NASDAQ:SEED) appears bullish. Headquartered in Beijing, China, Origin Agritech features a long and proven record of agricultural innovations, per its website. Some of the grammar is a bit strange but from what I can ascertain, the company specializes in genetically modified organisms (GMOs).
Since the beginning of the year, SEED skyrocketed 40.5%. Moreover, recent enthusiasm carried shares into double-digit territory in the trailing five sessions. Thus, on paper, SEED appears to an investment worth considering, not one of the stocks to sell. Unfortunately, the financials remain suspect.
Per Gurufocus.com, Origin owns six severe warning signs to its name. Top among them centers on the consistent issuance of debt. As well, the investment resource notes that the agricultural firm never generated a profit in the past three years. Also, its “Piotroski F-Score of 3 is low, which usually implies poor business operation.”
Founded in 1988, QuickLogic (NASDAQ:QUIK) represents another example among stocks to sell that doesn’t seem that way. Per its website, QuickLogic is the leading provider of open reconfigurable computing solutions based on 100% open source software and hardware. Fundamentally, the company undergirds applications and systems across various industries, driving much relevance.
To be clear, QUIK gained over 21% YTD, which is much more than what anyone can say for most other publicly traded securities. Unfortunately, the underlying business may be losing some of its luster. For example, Wall Street took a dim view of its Q3 earnings report. In particular, QuickLogic suffered revenue losses from both a sequential and year-over-year basis.
Broadly speaking, investors probably didn’t appreciate that against the longer-term framework, the company’s profit margins sit in negative territory. As well, the enterprise features a lackluster balance sheet. Similar to other stocks to sell, QUIK’s Altman Z-Score of 11 points below parity reflects a deeply distressed business.
Headquartered in Chandler, Arizona, Mobivity (OTCMKTS:MFON) global provider of personalized reward solutions that drive customer acquisition, frequency and spending. While a relevant concept during the prior bull market cycle, the current juncture raises plenty of questions. After all, consumer sentiment dipped to near historic lows, suggesting belt-tightening might hurt MFON.
Indeed, the company’s Q3 results left investors rushing for the exits. Primarily, revenue hit $1.9 million, standing in sharp contrast to the $2.3 million generated in the year-ago quarter. To be fair, management explained the setback as stemming from a restricting related to pandemic-related changes. Still, at a time when enterprises must demonstrate stability, Wall Street was looking for something better.
In addition, Mobivity’s cash and cash equivalents totaled $1 million compared to $1.6 million one year ago. Generally speaking, the balance sheet represents the company’s biggest weakness. Thus, the cash drain imposed significant worries. Further, with profit margins deep in negative territory, it’s best not to fight the tape. MFON is one of the stocks to sell.
Meta Data (AIU)
From both a technical and fundamental perspective, the key theme for Meta Data (NYSE:AIU) could very well be value trap. First, the details. Based out of China, Meta Data offers education services. Specifically, it provides after-school services for K-12 students, bringing programs to the table such as one-on-one tutoring and examination prep.
As with many of the other stocks to sell, the front-facing narrative for Meta Data makes for a compelling bullish case. However, it’s in the details where Meta in particular suffers. For instance, while it’s true that AIU gained nearly 17% of equity value in the trailing month, since the beginning of this year, it’s down a staggering 82%. Therefore, buying AIU now seems like trap.
Financially, it almost certainly is a value trap. For instance, Meta Data trades for 0.03-times sales, which seems like a steal. However, its three-year revenue growth rate is negative. So are the operating and net margins. As well, the company features an Altman Z-Score of 57 points below parity. Honestly, AIU could implode at any moment.
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.