Stock markets are enduring turmoil this August. Since the beginning of the month, the benchmark S&P 500 index has declined 2%. The downturn comes amid uneven corporate earnings and notable misses among some highly influential names. The volatility also comes as ratings agencies downgrade America’s credit rating and even the ratings on several U.S. banks. With China’s economy showing a marked deceleration, there’s cause for concern about a global recession.
And so, in this climate, some once-promising growth stocks are looking less like the sure bets they did even a few weeks ago. Investors should be careful with the growth stocks in their portfolios. It might be smart to trim some positions and sell others outright as the road ahead gets murkier.
Here are three growth stocks to sell in August before they crash and burn.
Apple (AAPL)
Since reporting its latest financial results, the share price of Apple (NASDAQ:AAPL) has declined nearly 10%. The selloff was prompted by news that sales of the company’s flagship products, notably the iPhone, declined for a third consecutive quarter. Specifically, iPhone sales in the most recent quarter dropped 2% from a year earlier, Mac computer sales declined 7% year-over-year, and iPad revenue sank 20% from the same period of 2022. This has resulted in $200 billion being wiped off Apple’s market capitalization in a matter of days.
Analysts and investors are now trying to figure out what the continued slump in product sales means for Apple and where the consumer electronics giant goes from here. Are the company’s best days behind it? Or is this a temporary slump in demand that will reverse course? Most analysts seem to agree that Apple’s upcoming iPhone 15, due out in September, has to attract consumers and boost global sales. Furthermore, some analysts are focusing on Apple’s pivot to services such as Apple TV and Apple Pay, the company’s payment platform.
Time will tell where AAPL stock ultimately ends up, but for now it’s a growth stock to sell.
Eli Lilly (LLY)
Things are looking frothy with drug maker Eli Lilly (NYSE:LLY), which is usually what happens right before a stock endures a pullback. On the day of this writing (August 8), LLY stock is up as much as 17% in a single trading session after the company reported blockbuster Q2 results and lifted its forward guidance. The beat and raise was largely due to sales of the company’s much hyped medication Mounjaro that is used to treat Type 2 diabetes but may also be used for weight loss. Approval as a weight loss drug is pending regulatory approval.
The company raised its full-year earnings per share forecast to $9.70 to $9.90 a share from previous guidance of $8.65 to $8.85. That increased guidance assumes Mounjaro will be approved by the U.S. Food and Drug Administration (FDA) as a weight loss treatment. Investors are bidding up LLY stock on expectations of that approval too. The company’s share price has gained 45% YTD.
But what happens if the FDA doesn’t approve Mounjaro as a weight loss treatment? The bubble surrounding this stock could burst. Proceed cautiously.
Southwest Airlines (LUV)
Most airlines are crushing it this year as travel across the U.S. and around the world skyrockets following the pandemic, but not Southwest Airlines (NYSE:LUV). The company’s share price shed 9% immediately after it issued Q2 results that showed its revenue declining and its profit missing consensus with Wall Street forecasts. LUV stock is now down 15% over the last 12 months. The carrier blamed the poor Q2 print on an 8.3% decline in ticket sales, as well as higher costs for items such as wages and fuel.
Southwest’s Q2 financial results arrived as rival carriers reported record earnings, and this sent analysts scrambling to downgrade LUV stock. Analysts at Bernstein became the latest to lower their outlook for Southwest Airlines’ stock, dropping their rating to “hold” from “buy” and taking their price target on the shares down to $32 from $41. The slew of downgrades comes as Southwest forecasts that its revenue is likely to fall a further 7% during the current third quarter of the year. This makes Southwest a growth stock to avoid in August.
On the date of publication, Joel Baglole held long positions in AAPL and LLY. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
