Special Report

10 Stocks to Sell Now

Eric Fry

Welcome to Smart Money!

Wall Street has sold investors on the idea that they should start with “micro” analysis – the idea that they should make investment decisions by comparing things like price/earnings ratios, income statements or other company details.

But I do the opposite; I start with the “macro” analysis.

I look for big-picture trends that drive huge, multiyear moves in entire sectors of the market.

I’m talking about trends that can spin off dozens of triple- and even quadruple-digit gains in just a few years.

Catching just one of these trends – at the right time – can help anyone accumulate enough capital to finance their dreams and to provide themselves with an enviable retirement…

But as crucial as it is to own good stocks, it’s just as important to kick the bad ones to the curb.

In fact, it might even be more important.

Making money is, of course, great. But losing money stings in a way little else does.

So, in today’s report, I’m going to reveal 10 stocks I recommend selling right now.

Not tomorrow… not when you feel like it… right now.

Let’s get started.

Just Say “No”

If you examine each stock in your portfolio and ask yourself honestly…

Could this stock make a huge difference for me?

Could this stock be a 10-bagger?

… the answer should always be a resounding “Yes!”

Because if the answer is “No,” or even a hesitant “I hope,” the stock doesn’t belong in your portfolio. Even if it’s a solid blue chip or a popular household name.

That’s the first part of tidying up your portfolio.

The next part requires a more technical approach.

Now, none of us has a copy of next year’s newspaper. We can never know exactly what the future will hold. Therefore, analyzing which stocks will succeed versus which ones won’t is an inexact science. In fact, it’s a guess.

But we can educate this guess.

Based on decades of stock market history, we know a few key details about what produces investment success over time. For example, we know that…

  • Fast-growing companies tend to produce better investment results than slow-growing ones…
  • Low-valued companies tend to produce better investment results than richly valued ones…
  • Cash-rich companies tend to produce better investment results than heavily indebted ones…
  • Companies that generate positive cash flow tend to produce better investment results than companies that generate negative cash flow…
  • And companies that possess a formidable “moat,” as Warren Buffett calls it, tend to produce better investment results than companies without any special competitive advantage.

So when we examine the stocks in our portfolios, we should favor those that possess one or more of these winning traits.

Obviously, some stocks that possess serious flaws will buck the odds and perform well anyway. Sometimes heavily indebted, slow-growing companies find a way to reverse their declining fortunes and become major successes. But companies like that are rare outliers.

You don’t want to pursue investment success by betting on flukes. Instead, you want to stack the odds in your favor as much as possible.

And I’ve discovered a way to do that.

It’s a simple tactic for raising the odds of investment success – for determining which stocks are likely to flourish… and which are likely to disappoint.

You may be shocked to see how simple this two-part filter is. But despite its simplicity, it is extremely valuable and powerful.

10 Stocks to Sell Today

Calculate the size of a company’s net debt, and then divide that figure by the company’s annual revenue.

Generally speaking, the higher the resulting ratio, the worse a stock is likely to perform over the following five years – and vice versa.

That’s it. That’s the entire process.

I routinely use this simple test to identify potential investments, but obviously, my research does not end there. Once I identify a potential investment, I qualify that stock by conducting additional targeted qualitative and quantitative research.

Some investment candidates make the cut. Most don’t.

Now, I recently ran my refined debt-to-sales filter on a large cross-section of U.S.-traded stocks that have market capitalizations greater than $1 billion, and it produced the list of 10 stocks to sell below.

Based on historic tendencies, these slowly growing, heavily indebted stocks, as a group, will struggle to keep pace with the overall stock market during the next five years…

  1. Abercrombie & Fitch Co. (ANF)
  2. Bath & Body Works Inc. (BBWI)
  3. The Clorox Co. (CLX)
  4. DaVita Inc. (DVA)
  5. Gen Digital inc. (GEN)
  6. Grifols S.A. (GRFS)
  7. MoneyGram International Inc. (MGI)
  8. SunOpta Inc. (STKL)
  9. TransDigm Group Inc. (TDG)
  10. Trinity Industries Inc. (TRN)

Somewhat surprisingly, this list includes some iconic American names like Clorox and Bath & Body Works. But even world-dominating companies like these are subject to the basic laws of economics.

To be clear, I am not suggesting that these companies are in any immediate financial peril. But what I am suggesting is that they have become so debt-laden that their stocks are likely to perform relatively poorly over the next few years.

That’s what this system is all about – avoiding underperformers so that you can make room for outperformers.

If past is prologue, the 10 stocks on this list, on average, will underperform the overall market by a large margin over the next five years.

If you own any of them, be sure you’ve done your research and that you have good reason to believe they will reward you in the future.

If not… sell them.

Moving Forward

I’m so glad that you decided to further your journey to wealth by joining Smart Money.

While my method to purge your portfolio is sure to help you avoid pitfalls this year and beyond, this aren’t the only benefits of this free e-letter…

Nearly every Tuesday, Thursday, and Saturday, you’ll receive an email from me, wherein I’ll share insights on the latest market “megatrends,” how to look past the noise in financial media and understand what really matters, and more.

Get started by visiting your Smart Money website here.

Regards,

Eric