Inherently an uncomfortable topic, the concept of stocks to sell arouses significant emotions. Much like sports fans hearing criticisms about their favorite team, a sense of honor is perceived to be violated. Therefore, few investment writers enjoy talking about this subject. But what if the call is coming from inside the house?
What I’m referring to is insider transactions. On the flipside of the broad umbrella of stocks to sell is the concept of insider buys. When a person closes to the business decides to buy into said enterprise, only one motivation exists: that investor believes the underlying security will rise in value. However, insider selling presents an interpretive challenge.
Yes, insiders could dump because the security is genuinely one of the stocks to sell. However, they could also divest their holdings due to utterly mundane reasons, such as tax considerations. Still, context matters.
When the fundamentals, the analyst community and corporate insiders don’t want the smoke, something might be up. On that note, below are stocks to sell (or at least consider doing).
Stocks to Sell: Campbell Soup (CPB)
At first glance, iconic canned food manufacturer Campbell Soup (NYSE:CPB) hardly seems a candidate for stocks to sell. Sure, it might not be the greatest company in the world. However, it appears significantly relevant amid rising pressures against the consumer economy. Basically, CPB should benefit from the trade-down effect.
Obviously, financial pressures won’t cause households to stop eating altogether. But what will almost surely happen is that they will stop going out to eat and cook at home. That’s the trade down, moving to a cheaper alternative until you find an equitable equilibrium. Unfortunately, investors aren’t buying it, with CPB losing 27% since the January opener.
One problem is that Campbell suffers a low cash-to-debt ratio of 0.04x. Going back to November 2003, insiders have sold CPB stock 125 times per Fintel. How many times have they bought? Only six. Therefore, analysts rate CPB a moderate sell. That said, the average price target lands at $45.50, implying 11% upside.
Moelis (MC)
A global investment bank, Moelis (NYSE:MC) provides financial advisory services to corporations, governments, and financial sponsors. Per its public profile, Moelis advises on strategic decisions such as mergers and acquisitions, recapitalizations and restructurings, and other corporate finance matters. However, this arena also faces significant challenges due to broader economic uncertainties.
Do you remember a few weeks ago when SoFi Technologies (NASDAQ:SOFI) helped underwrite the Instacart (NASDAQ:CART) initial public offering? That was billed as a make-or-break moment for SoFi. Well, prior to the IPO, I noticed that options traders placed aggressively bearish bets against SOFI. Turned out, the smart money was right.
In other words, the high finance market is hurting, likely from heightened borrowing costs. Unsurprisingly, then, insiders have dumped MC across 223 transactions since April 2014. In contrast, only one insider buying transaction occurred. That’s obviously not a great sign. Further, analysts recognize MC as one of the stocks to sell. Their price target sits at $42.50, implying nearly 6% downside risk.
Sprouts Farmers Market (SFM)
If other companies don’t seem like candidates for stocks to sell, Sprouts Farmers Market (NASDAQ:SFM) definitely doesn’t deserve this label based on its market performance. Since the start of the year, SFM skyrocketed over 38%, which is an incredible print. Remember, the high-flying Nasdaq Composite index gained only about 27%. Yes, SFM is listed in the Nasdaq exchange but come on – it’s a grocer.
Naturally, though, grocers present a compelling narrative during periods of economic uncertainty. However, one fundamental challenge exists against SFM and that’s the relative lack of economies of scale. Specifically, Sprouts positions itself as a provider of specialty or organic food products. Logically, these products will carry a higher price.
To be fair, Sprouts also caters to a consumer group looking for said products. However, amid economic challenges, the consumer could easily trade down to the supermarket giants. Since July, insiders have sold SFM stock across 288 transactions. In contrast, insiders only bought shares across 29 transactions. Finally, analysts peg SFM a sell with a $35 target, implying over 18% downside risk.
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.
