While a contentious topic, investors seeking long-term success must frequently consider stocks to sell. Similar to changing the oil in a combustion-powered car, you’ve got to keep the overall machinery running well. Just like you (likely) don’t have an emotional attachment to motor oil, you must adopt a similar policy to underperformers.
True, we live in an era of toxic positivity, which means surrounding yourself in a circle of good vibes. Unfortunately, such mind tricks don’t work in the objective reality of the equities space. You’re either making a profit or you’re not. And the worse part is, just because you think a security will rise doesn’t mean it will. Therefore, you’re incentivized to consider stocks to sell.
If we’re still hung up on the topic, imagine only eating food and never doing something else. Are you going to be feeling well after days upon days of non-stop eating without using the facilities? Of course not! You’d build up toxicities if you kept eating without releasing.
And on that note, let’s talk about certain stocks to sell (or at least consider doing so).
Unfortunately, investors face some difficult decisions regarding electric vehicle giant Tesla (NASDAQ:TSLA). Yes, everyone loves EVs because they represent the future. Also, Elon Musk is a genius because everybody on the Internet says so. However, over the past year or so, the world is getting quite a reality check.
First, the universal love of EVs? Well, it might not be so universal after all. As multiple sources pointed out EV prices have plunged and that’s not because demand is so robust. Second, following Musk’s every word might not be the wisest decision. Purchasing the social media platform formerly known as Twitter and is now just called X represented a bad move so far.
I’m not here to cast aspersions on Musk. However, there may be some confidence issues regarding navigating Tesla from current challenges. Also, as I pointed out for TipRanks recently, higher gas prices have not led to a rise in TSLA. That’s another reason why I’ve got to label TSLA as one of the stocks to sell for now. If you really believe in it, you can probably pick shares up on discount later.
United Airlines (UAL)
I’m not necessarily here to pounce on United Airlines (NASDAQ:UAL) because of its recent disappointing financial disclosures. Yes, the company managed to post a net profit of $1.14 billion. When adjusted for non-recurring items, its earnings per share of $3.65 beat analysts’ target of $3.38. Also, revenue of $14.48 billion also beat the consensus estimate.
Unfortunately, United guided fourth-quarter earnings per share to land between $1.50 and $1.80. And that’s where the troubles started because analysts expected EPS of $2.09. Further, the downgrade assumed a ban on all flights to Tel Aviv until the end of 2023 due to Hamas’ attack on Israel.
Still, there may be something deeper going on. Basically, brewing evidence exists that the phenomenon of revenge travel may be fading. If so, that could yield even poorer performances for airliners, which have already struggled to get back to pre-pandemic levels.
Fundamentally, investors may want to wait for a better read on consumer sentiment. Still, options flow data – which exclusively filters for big block transactions – shows major traders engaging UAL options at lower strike prices. Thus, I think it’s one of the stocks to sell.
While an icon in the luxury department store realm, Nordstrom (NYSE:JWN) also suffers from a relevancy problem. To be sure, the rise of e-commerce might not spell the complete destruction of America’s shopping centers. And brick-and-mortar locations have the advantage of the try-before-you-buy concept. Still, with e-commerce platforms increasingly offering convenient exchange and return policies, Nordstrom may have difficulty keeping up.
Another factor that hurts JWN – and why it may be one of the stocks to sell – centers on consumer confidence. Compared to pre-pandemic levels, sentiment sits low, which is a problem for discretionary retailers. It doesn’t take much to cut luxury items from the household budget. And it’s not like Nordstrom is a brand that the uber-wealthy must acquire.
Financially, I’m not a big fan of its fading long-term revenue and EBITDA growth rates. And while JWN trades at a forward earnings multiple of 6.6X, investment data aggregator Gurufocus warns it’s a possible value trap. With the erosion of the top line amid fading consumer confidence, it’s hard to view Nordstrom’s as good value. At the very least, you should be careful.
An icon of a bygone era, Xerox (NASDAQ:XRX) presents a rough case for ardent supporters. Of course, the company’s core business of selling print and digital document products and services is still important. However, if doom-and-gloom prognostications are correct, Xerox will likely suffer a decline in its total addressable market. Look, it’s just tough to sell such products/services when companies are laying off their workers.
Financially, Xerox is in a rough place, which is why XRX could be one of the stocks to sell. Presently, its three-year revenue growth rate comes in at 3.7%, worse than nearly 62% of its peers. Also, its profitability has been taking a hit. In 2020, it posted net income of $192 million. In 2021 and 2022, we’re talking net losses of $455 million and $322 million, respectively.
On a technical note, major options traders apparently saw the writing on the wall months ago. Per Fintel, they’ve been buying put options (that expire in January next year) back in late July through early August. Right now, those puts look awfully compelling because XRX slipped almost 11% in the trailing month.
Invesco Mortgage Capital (IVR)
Given that this is a family publication, I can’t really say what I’m thinking regarding Invesco Mortgage Capital (NYSE:IVR). All I can say is that it’s a show. It’s a “brown” show if you catch my drift. A real estate investment trust (REIT), Invesco Mortgage primarily invests in and manages residential and commercial mortgage-backed securities and other mortgage-related assets. So, you should care that IVR is volatile.
Since the January opener, shares fell nearly 41%. So, from a purely tactical level, you should consider Invesco as one of the stocks to sell. But the negative acceleration makes it worse. Just in the trailing month, IVR lost 28% of equity value. It’s almost as if the market believes the mortgage sector may suffer problems due to sharply rising borrowing costs.
Moreover, institutional traders aren’t playing games based on Fintel’s options flow screener. Basically, the overwhelming sentiment among the smart money is bearish: the big dogs are either selling (writing) calls or buying puts. And that’s not a surprise given the rough economic backdrop. Personally, I’d stay away from this one.
A leading global media and entertainment company, iHeartMedia (NASDAQ:IHRT) specializes in radio, digital, and on-demand entertainment. As well, it facilitates live events and various social experiences. Unfortunately, as exciting and relevant as iHeartMedia may be on the ground floor, it has failed to resonate with investors. Since the January opener, IHRT gave up 58% of equity value.
What’s worse, in the trailing one-year period, shares hemorrhaged slightly over 70%. Now, some intrepid contrarians may view this circumstance as a significant de-risking. However, it’s difficult to view circumstances in that positive light, especially with the company suffering a three-year book growth rate of 38.7% below breakeven. Not surprisingly, its cash-to-debt ratio sits at a lowly 0.03X, which is worrisome.
Sure, you can point to IHRT trading at a revenue multiple of 0.02x. However, this could possibly be a value trap as the top line is showing signs of erosion. Therefore, it’s probably one of the stocks to sell. As a final bit of confirmation, analysts rate IHRT as a consensus moderate sell. So, it’s time to look for another opportunity.
Based in San Francisco, California, FibroGen (NASDAQ:FGEN) focuses on pioneering innovative therapeutics. Specifically, it creates first-in-class medicines to treat chronic and life-threatening conditions such as anemia, Duchenne muscular dystrophy and pancreatic cancer. While the company entered the public arena with much hope, circumstances just haven’t panned out. Since the January opener, FGEN lost more than 96% of market value, an alarming drop.
According to a Reuters report, FibroGen’s experimental drug for a chronic lung disease failed to significantly slow the decline in a key measure of lung function. Given that this was a late-stage study, the drugmaker’s valuation imploded, erasing years of hard work.
If that wasn’t bad enough, FibroGen also failed a late-stage study of its Duchenne muscular dystrophy treatment. Subsequently, investors have lost confidence in FGEN, making it one of the stocks to sell. Not shockingly, major traders have also engaged FGEN options at lower strike prices, implying that even among the bulls, they’re trading down to more realistic expectations. Maybe the third time’s the charm but this is a super high-risk trade now. I’d probably just steer clear.
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.