It might seem counterintuitive, but as investors get deep into a stock market rally like the current one, it doesn’t hurt to monitor the portfolio for stocks to sell now.
No stock goes up in perpetuity. It might be easy to look at the red-hot runs of shares that double and triple in a year or two and think the good times will last forever. But longtime BlackBerry (BB) shareholders likely wish they had taken some off the top after the stock’s 500% run in the late aughts. Ask JCPenney and Sears shareholders whether it was worth holding until the bitter end.
Yes, Warren Buffett will tell you “our favorite holding period is forever,” but just because it’s his favorite holding period doesn’t mean he lives and dies by buy-and-hold. For every American Express (AXP) that he holds for several decades, there’s an American Airlines (AAL) that he ditched in just a few years. Heck, Buffett trimmed or exited 18 positions last quarter and dumped stock in 21 companies in Q1!
Looking for stocks to sell is just part of the game.
But where should investors take profits? We’ve analyzed the total-market Russell 3000 for stocks that have run up of late, many of which are sitting on sizable gains, but that Wall Street thinks are overcooked.
Here are nine stocks to sell now, according to Wall Street’s pros. S&P Global Market Intelligence surveys analysts’ stock calls and scores them on a five-point scale, where 1.0 equals a Strong Buy and 5.0 is a Strong Sell. Every stock on this list sits on the higher side of 3 – at best they’re bearish Holds, and some are outright Sells. And in most cases, prices have gone well past analysts’ 12-month price targets.
Data is as of Sept. 3. Stocks are listed in order of their consensus analyst rating.
- Market value: $6.4 billion
- Year-to-date performance: 42.6%
- 3-month performance: 20.7%
- Analysts’ average recommendation: 3.03 (Hold)
GrubHub (GRUB, $69.36) appeared to be a natural “coronavirus play” early on during the COVID-19 pandemic, and in fact, it was. GrubHub’s delivery services proved an invaluable bridge for restaurants and diners while the former’s doors were shuttered, and food delivery has remained popular as many people choose to safely eat at home even after various state and local restrictions were lifted.
That helped GRUB shares gain as much as 60% through October, and shares still sit on 40%-plus gains YTD.
However, GrubHub’s stock is a slightly bearish Hold with shares sitting right around analysts’ consensus price target of $67.70, according to S&P Global Market Intelligence. Argus Research’s John Staszak, who has a Hold rating on the stock, points out the danger ahead.
“We expect GrubHub to benefit from product enhancements and improved restaurant selection, as well as from acquisitions and partnerships with Dunkin Brands, Pizza Hut and Taco Bell,” he writes. “However, we think that margins will be hurt by the higher spending needed to enter new markets, particularly smaller restaurants. We also expect the company to face increased competition from services such as DoorDash and UberEats.”
Another complicating factor that might be a reason to let go of GrubHub shares is that the company recently was acquired by Dutch online food ordering app Just Eat Takeaway. The all-stock deal, which is expected to close in early 2021, will see 0.6710 shares of new Just Eat American Depositary Receipts (ADRs) – foreign shares that trade on American exchanges.
“We do not believe that this deal will improve no-moat Grubhub’s competitive positioning in the United States,” writes Morningstar analyst Ali Mogharabi, whose $61 fair-value target on GRUB shares is 12% current prices. “While we project strong demand for online food delivery with the ongoing presence of COVID-19, there is uncertainty that it will be sustainable at current levels when the economy eventually recovers and restaurants reopen.”
- Market value: $380.0 billion
- Year-to-date performance: 384.7%
- 3-month performance: 130.0%
- Analysts’ average recommendation: 3.06 (Hold)
Just how overvalued can a stock be if it has already shed 18% in a matter of days?
Very, if we’re talking about momentum darling Tesla (TSLA, $407.00).
Tesla, to be fair, has grown like a weed and has been profitable in aggregate over the past year, finally qualifying it for S&P 500 inclusion. The bulls have legitimate reasons to be enthused. But any argument about fundamentals ignores that TSLA simply doesn’t trade on fundamentals – it trades the potential for what CEO Elon Musk can do given time, and that has mostly worked in its favor since its 2010 IPO.
To wit, even after losing nearly 20% of its value, the stock still trades at 333 times next year’s earnings estimates, and 16 times its trailing 12 month sales, both of which are many times more expensive than your average S&P 500 stock. Tesla, which delivered 179,050 vehicles in the first half of 2020, is worth $380 billion; Toyota (TM), which has sold twice as many RAV4s alone this year and more than 4.1 million vehicles across three brands, is worth $210 billion.
Analysts find themselves stuck between a rock and a hard place.
“We recognize we underestimated a critical valuation point: seemingly insatiable investor demand for alternative/clean vehicles,” RBC Capital analyst Joseph Spak (Underperform, equivalent of Sell) writes. “That being said, we struggle to explain the run-up to the stock split which academically doesn’t change the value of Tesla equity but could help fuel investor interest.”
“We still view Tesla as fundamentally overvalued and having to grow into its valuation,” he adds.
Wedbush analysts, meanwhile, praised the company’s stock split while maintaining its Neutral rating and $380 price target – 7% lower from here. But it also posits a bull case that sees TSLA shares hitting $700.
On the whole, Tesla has five Strong Buys and a Buy versus five Sells and four Strong Sells, as well as a bevy of 17 Holds in the middle. It’s virtually a Hold, but what makes it particularly bearish is an average $296.77 price target that implies 27% more downside from here.
Longer-term shareholders could do worse than taking some profits and hoping to reload at cheaper prices.
Community Health Systems
- Market value: $636.4 million
- Year-to-date performance: 83.1%
- 3-month performance: 58.5%
- Analysts’ average recommendation: 3.36 (Hold)
Community Health Systems (CYH, $5.32) is a publicly owned hospital operator whose affiliates own, operate or lease 93 hospitals, representing about 15,000 beds, in 16 states, mostly in the South and Midwest.
2020 hasn’t exactly been normal for most stocks, but CYH has really been on a roller-coaster ride. Shares had gained almost 150% through February fueled in part by stellar results on the back of a several hospital divestitures. Street-beating revenues and a surprise 40-cent-per-share profit in Q4 (versus estimates for a 46-cent loss) sent the stock spiking.
COVID temporarily brought shares back to earth, but the company has been back on the rise ever since, posting roughly 60% gains over the past three months.
But it’s possible Community Health Systems has outkicked its coverage, given a bearishly leaning Hold rating. Specifically, five analysts call CYH a Hold, four say it’s a Sell, one says it’s a Strong Sell – all of that offset by a lone Strong Buy rating. Moreover, a consensus price target of $4 per share, according to S&P Global Market Intelligence, means CYH could lose a quarter of its value before being considered fairly priced.
UBS analyst Whit Mayo, who has a Sell rating and $3 price target on CYH, had plenty of criticisms for the company’s most recent quarter.
“Absent the CARES funds, we estimate CYH only offset 35% of the COVID disruption versus our pre-COVID forecast. This materially trails peers (HCA = 60%; UHS = 45%) which perhaps makes sense given historical expense reduction initiatives,” he writes. “Core (free cash flow) remains negative, DSOs are running historically high, 2021 sets up for negative cash drain, estimates look stretched squared against both vol and payer mix risks.”
- Market value: $506.4 million
- Year-to-date performance: 28.5%
- 3-month performance: 86.8%
- Analysts’ average recommendation: 3.38 (Hold)
Video game retailer GameStop (GME, $7.82) is one of the hottest stocks on Wall Street right now, shooting more than 86% higher over the past three months, but most of that has come in just the past few weeks.
The company has zoomed ahead on news that RC Venture LLC, managed by pet e-commerce firm Chewy (CHWY) co-founder and former CEO Ryan Cohen, has acquired nearly 10% of GameStop’s shares. Investors likely are hoping that Cohen can shore up GameStop’s e-commerce business and potentially offset some of the continued decline in its brick-and-mortar locations.
Compounding the gains, however, is the fact that a lot of investors were placing bearish bets on the stock. How much? Back in late July, GME was one of Wall Street’s most shorted stocks, with literally 113% of available shares being “sold short.”
In a nutshell, you can place a short bet by borrowing shares and immediately selling them, hoping to buy them back at a lower price at a later date and pocketing the difference. But the cost of borrowing shares goes up over time, and as share prices go up, those short bets lose value … and the only way to close a short trade is to buy more shares. This can result in a cycle called a “short squeeze” that drives prices violently higher. So it’s likely Cohen’s buy-in triggered a short squeeze in GME.
Still, GameStop’s stock has rocketed well past the analyst community’s target price of $4.81 per share, which now would represent a 38% loss from current levels.
Credit Suisse (Underperform, $3.50 price target) outlines the uphill climb: “We expect sales and gross profit to remain under pressure, and we believe that it will be difficult to return to positive EBITDA this year even with new consoles in Q4, as higher margin categories such as pre-owned decline.”
Baird analyst Colin Sebastian (Neutral, $5.00 PT) sees a similar short-term “reprieve” thanks to new consoles from Sony (SNE) and Microsoft (MSFT), but notes that a broader shift toward digital game distribution and online game play continues to work against GameStop long-term.
The short squeeze might still have some fuel in it, given that as of Aug. 24 (the most recent data available), 84% of shares were still sold short. But GameStop still faces considerable existential threats. Those sitting on outsized short-term gains could consider taking some of their chips off the table soon.
- Market value: $721.5 million
- Year-to-date performance: -8.3%
- 3-month performance: 18.9%
- Analysts’ average recommendation: 3.5 (Sell)
The very worst seems to be behind AMC Entertainment (AMC, $6.60), the American theater giant that boasts some 380 locations.
Movie theaters were unsurprisingly one of the worst-hit businesses amid COVID-19, given that the venues require people to be seated for hours in an enclosed space. AMC, whose stock lost more than 70% of its value at one point, was forced to close its theaters in mid-March and didn’t begin opening them until August, well after even most retailers were able to at least partially reopen.
Compounding the issue was the fact that prior to the outbreak, AMC had accumulated debt through acquisitions and heavy spending on upgrading its theaters to keep up with the likes of Alamo Drafthouse and Cinepolis. It has spent the past few months simply trying to stay afloat, and in early August it announced it had completed a complex restructuring of $2.6 billion in debt that should buy it some time.
AMC Entertainment could very well have more room to run if there’s a sudden material change in America’s COVID-19 situation. But as it is, a strong 19% run over the past three months has shares some 40% above analysts’ consensus price targets. Seven pros tracked by S&P Global Market Intelligence call the stock a Hold, with another calling it a Sell and two saying AMC is a Strong Sell.
William Blair’s Ryan Sundby and Jessye McVane, who have the stock at Market Perform (equivalent of Hold), point out that while the theater chain “appears better positioned to ride out the impact of COVID19 (assuming cases of the virus remain manageable),” it faces several risks, including alternative film delivery methods (streaming) and hesitation on the part of consumers to return to theaters regardless of a vaccine.
The Container Store
- Market value: $211.0 million
- Year-to-date performance: -0.7%
- 3-month performance: 40.1%
- Analysts’ average recommendation: 3.67 (Sell)
The Container Store (TCS, $4.19) is as specialized a retailer as they come. The company’s retail arm sells everything from plastic water pitchers to file cabinets, while its Elfa segment designs and makes specialized shelves and drawers for most rooms in the home. If you need to put something somewhere, The Container Store has you covered.
Given that most of its revenues are derived from the store segment, TCS understandably struggled during the early part of the year. But the company has been among a number of hot housing market stocks that have benefited from both resilient home sales, as well as people spending to improve their surroundings while they’re stuck at home.
Still, it’s not all roses at TCS. While online sales nearly tripled year-over-year in its fiscal first quarter ended June 27, net sales were down 27.6% year-over-year thanks to COVID-19’s impact on its physical stores’ foot traffic. The company also posted an adjusted loss of 32 cents per share, much wider than the year-ago quarter’s 8 cents.
A thin group of just three analysts cover The Container Store’s stock, but they represent one Hold and two Sell ratings, while their average $3.00 price target implies shares need to cool off by about 28% from here.
Goldman Sachs’ Kate McShane downgraded TCS shares from Neutral to Sell in late August, citing increasing competition, inventory shortages for in-demand categories and “pull-forward in demand from stay-at-home trends.” She also believes margins will be impacted by heavy promotions in the space.
- Market value: $238.5 million
- Year-to-date performance: -72.7%
- 3-month performance: 23.4%
- Analysts’ average recommendation: 4.0 (Sell)
USA TODAY owner Gannett (GCI, $1.75) has been in rapid decline for years, and a late 2019 merger with GateHouse to create the country’s largest print-and-digital news organization didn’t do much to energize the stock. Shares were flat between effectively flat between the November deal close and the start of Gannett’s precipitous COVID-19 decline.
The coronavirus itself has been a cruel tease for the publisher. Most Americans were stuck inside for months because of the pandemic, driving up web traffic, but a significant pullback in advertising meant Gannett wasn’t able to capitalize on it. That forced the company to announce a dividend suspension and several other cost cuts in April.
Those financial moves helped somewhat – the company earned $78 million in earnings before interest, taxes, depreciation and amortization (EBITDA) during Q2, but thanks to goodwill and tangible impairment charges, as well as depreciation and amortization, the company reported a $437 million net loss.
Only three analysts tracked by S&P Global Market Intelligence cover the stock – one Hold, one Sell and one Strong Sell. But they still see Gannett’s $1.75 price per share as 43% to high, based on a $1-per-share consensus price target.
And even the analyst calling Gannett a Hold voices plenty of concern.
“Gannett faces pressure from persistently weak print advertising and circulation revenue, as well as from weak margins, and operates in an industry facing secular decline,” writes CFRA analyst Deborah Ciervo. “We rank Gannett’s financial strength as Low due to its high debt burden and deteriorating top- and bottom-line results.”
- Market value: $935.0 million
- Year-to-date performance: -19.0%
- 3-month performance: 55.8%
- Analysts’ average recommendation: 4.0 (Sell)
Signet Jewelers (SIG, $17.87) is the powerhouse of the mall-jewelry space. It operates more than 3,200 stores under brands including Zales, Jared and Kay Jewelers and Piercing Pagoda, among others.
COVID knocked SIG shares more than 80% off of its 2020 highs at one point, which is why even though shares have ramped up by 56% over the past few months, the stock is still sitting on a considerable double-digit loss.
Unfortunately, the company’s presence in malls – which were already in long-term decline pre-COVID – continues to be a liability now and even in a post-pandemic world now that more people have adopted online shopping habits.
Signet’s clear Sell rating is spread across two Holds, one Sell and two Strong Sells, and those analysts see this rally as completely overcooked. A consensus price target of $8.67 per share means the stock could lose half its value and still be a touch overpriced.
“We maintain Sell on what we see as a stalled ‘Path to Brilliance’ transformation,” writes CFRA analyst Camilla Yanushevsky, “reflected by SIG’s deteriorating operational performance and competitive positioning as mid-market jeweler, which we attribute, in part, to high exposure to malls (North America at 67%, with many lower-tier, and our view that majority of these malls will close as landlords struggle to replace dept. anchors), slow adoption of omni-capabilities, mounting inventories … and further exacerbated by delayed marriages and formal events due to COVID-19.”
- Market value: $3.8 billion
- Year-to-date performance: 61.1%
- 3-month performance: 45.5%
- Analysts’ average recommendation: 4.25 (Sell)
National Beverage (FIZZ, $82.20) is a lesser-known competitor to Coca-Cola (KO) and PepsiCo (PEP) that boasts more than a dozen brands. But the names you’ll likely know are Faygo and Shasta sodas, Everfresh juices, Rip It energy drinks and their crown jewel: La Croix sparkling water.
However, “National Beverage’s seeming portfolio breadth is a bit misleading,” Morningstar analyst Nicholas Johnson warns. “The firm is disproportionately reliant on its flagship sparkling water, LaCroix, with its other trademarks competing largely at the periphery of their categories.”
That worked to FIZZ’s benefit in its most recent quarter, as LaCroix helped deliver a small 0.9% year-over-year improvement in revenues and a decent 7.5% improvement in profits, both of which handily beat Street estimates. “Three ground-breaking new flavors, LimonCello, Pastèque and Hi-Biscus, unique only to LaCroix, were launched nationwide with impressive results that drove record fourth-quarter sales,” a company spokesperson said.
Nonetheless, competition could be problematic going forward.
“Despite favorable category dynamics, the company has to contend with gargantuan disparities in scale relative to larger soft drink firms that are investing heavily to steal share from LaCroix,” Johnson says. “Moreover, in an era of viral media and ‘cancel’ culture, the firm’s dependence on a single trademark is unnerving.”
Earlier this summer, CFRA dropped National Beverage to Strong Sell, saying, “We see FIZZ’s recent struggles continuing in the coming quarters due to increased competition with recent retail sales data indicating that PepsiCo’s Bubly and Coca-Cola’s AHA brands continue to take share in the category.”
Two analysts tracked by S&P Global Market Intelligence call FIZZ a Strong Sell, another says Sell and one is on the sidelines at Hold. As a group, they believe the stock’s fair value is some 29% lower.
This post was originally published on *this site*