If you are an investor looking for stocks to sell before a recession next year, you’ll most likely be hitting the mark. While 2022 has been an alarming year for stocks due to rampant inflation and rate hikes, with most tech and cyclical stocks facing massive selloffs, many stocks are still long overdue for a correction.
The Federal Reserve remains hawkish, and I only see its tone changing once inflation trends downward more intensely. Most importantly, many people ignore Fed Chair Jerome Powell’s thoughts on the labor market. He is not just concerned about inflation; instead, he also wants to raise the civilian labor participation rate. To reach pre-pandemic labor force participation rates, the Fed needs more people to work for less. Such a trend would make the economy healthier in the long run.
Unfortunately, further rate hikes will be necessary to slow the robust labor market. At this pace, the terminal rate could significantly inflation before we see a U-turn in monetary policy.
That means a lot of pain for companies with a lot of debt or significant exposure to a recession. The following three names are such stocks to sell before a recession:
UMH Properties (UMH)
I don’t recommend buying UMH Properties (NYSE:UMH) stock because of UMH’s poor fundamentals and the dangerous outlook of the real estate market.
The company is a real estate investment trust that owns, manages, and finances manufactured home communities and residential land in the U.S. Although the company has a solid track record of growth and profitability, there are several reasons why investors should consider selling their shares of UMH Properties.
First, the company’s stock price has been volatile in recent months, indicating that there may be underlying issues with its business model. UMH Properties also has high debt levels, which can weigh on the company’s financial performance and negatively affect its stock price. According to Gurufocus.com, the company’s Altman-Z score suggests that it is distressed, as its debt-to-equity ratio is ranked worse than 83.36% of 679 companies in the REIT sector.
Second, UMH Properties is highly reliant on the manufactured home market, which is exposed to various economic and political risks. For example, the company’s business could be negatively impacted by a downturn in the economy or changes to federal regulations that affect the manufactured-home industry. Those risks are highly likely to materialize next year.
Chevron Corporation (CVX)
Selling Chevron Corporation (NYSE:CVX) stock before a recession seems like a no-brainer as it looks overvalued compared to its competitors like Exxon Mobil (NYSE:XOM) and Occidental Petroleum (NYSE:OXY).
Sure, Chevron’s current position looks excellent as its profits are exploding due to high oil prices and lucrative drilling efforts. However, if a recession does hit in 2023, we could see this company’s stock nosedive.
Furthermore, Russia’s war on Ukraine has increased the value of CVX stock. Wars between coumntries rarely last long and usually end in a ceasefire, de facto or de jure. Even if the war drags on for a long time, countries such as China and India continue to buy significant amounts of discounted Russian oil, alleviating the demand for Middle Eastern energy. That will undoubtedly result in oil prices falling further over the longer term.
For these reasons, CVX is among the top stocks to sell for 2023.
McKesson Corporation (MCK)
McKesson Corporation (NYSE:MCK) has grown tremendously over the past year, and its stock has climbed more than 52% during that period.
The company’s remarkable financials and rising profit margins have compelled investors to pay a fortune for this stock, but the trend could soon reverse.
The company’s stock is simply too expensive in this environment. Its price-earnings ratio is currently 26.75 times, which does not look too high considering its powerful growth. However, its Shiller P/E ratio, which “eliminates fluctuation of the ratio caused by the variation of profit margins during business cycles,” stands at 73.4 times. That’s worse than 91.3% of companies in the Medical Distribution industry. Further, a number of the company’s insiders have sold MCK stock recently.
Overall, MCK is overdue for a significant correction. A similar correction to the downturn that the shares experienced in 2015 is likely as the firm’s fundamentals adjust to a tightening economy.
On the date of publication, Omor Ibne Ehsan 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.