6 Stocks to Sell Now

'Sell in May and go away,' the adage goes. Lock in profits on your stocks, book losses, take a vacation, avoid the market's summer doldrums.Of course, unloading bad stocks is a good strategy year-round, but in honor of tradition, here's our list of six top 'sell' candidates for May. They range from headline grabbers such as Best Buy and J.C. Penney to less-well-known companies that are suffering their fundamental challenges more quietly.

1. Garmin

Use of GPS devices is soaring, which should be good for an established player like Garmin (symbol GRMN), one of the trailblazers in global positioning system navigation. But Garmin, a leader when GPS mainly served pilots and boat owners, faces growing competition now that navigation chips are embedded in everything from smart phones to tablets to cameras.

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The result is a shrinking business. Sales of automotive and mobile devices, together accounting for about 55% of Garmin's revenue, fell from $1.67 billion in 2010 to $1.49 billion in 2012. Although the Switzerland-based company is pushing hard to increase sales of in-dash navigation systems for vehicles, it warned in its recent annual report that revenues from the critical automotive business, which makes dashboard and portable units for vehicles, are likely to continue falling. Overall, revenues fell by 2% in 2012, and Garmin's earnings of $2.78 per share were far below the $3.51 per share the company made in 2009.

The firm's well-regarded high-end products, such as navigation systems for aircraft, enjoy a relatively secure market because stringent regulation by the federal government keeps new entrants at bay. But those markets are not big enough to offset Garmin's challenges in consumer products. At $34.72, the stock sells for 14 times estimated 2013 profits, which are expected to be down from last year. That's too high. (Share prices are as of April 12.) The shares yield a generous 5.2%, and Garmin has gradually raised its dividend in recent years. Although the company says it is confident that it can maintain its payout, a fall in the share price could easily offset the income from Garmin's dividend.

2. Darden Restaurants

People have to eat, right? Yes, but they don't have to eat at mid-price eateries such as Olive Garden, Red Lobster and LongHorn Steakhouse, all belonging to Darden Restaurants (DRI). Analysts say the company faces long-term troubles unless its tired brands spice things up with updated menus, restaurant remodeling and slicker promotions.

Darden's chains occupy the space above fast food and below fine dining. The firm is the biggest player in this casual-dining category, giving it clout with suppliers. But diners can easily go elsewhere if they want quick, inexpensive food, or if they prefer to pay up for a memorable evening. A weak economy has hurt Darden's traffic, and it may continue to — especially as this year's increase in payroll taxes chews into households' dining-out budgets.

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All of this is pinching results. For the quarter that ended February 24, Darden earned $1.04 per share, down from $1.28 in the year-earlier period. Sales were up slightly, but only because the firm added 108 company-owned restaurants and purchased 40 Yard House restaurants. A worrisome sign: a 4.6% decrease in same-store sales (sales at restaurants opened at least one year) at Olive Garden, Red Lobster and LongHorn restaurants. Analysts expect earnings to fall 12%, to $3.15 per share, in the fiscal year that ends this May and to barely budge in theMay 2014 fiscal year. At $50.26, the stock sells for 16 times estimated current-year earnings. Like Garmin, Darden sports a high dividend yield, in its case 4.0%. Darden, too, says it is confident that it can maintain the current dividend rate. Again, however, the yield is unlikely to offset a fall in the share price.

3. Strayer Education

Everyone knows that college tuition has been soaring at two or three times the inflation rate, and that should allow for-profit colleges such as Strayer Education (STRA), owner of the 100-campus Strayer University and its online operation, to keep raising prices. Add intense demand from adults attracted to Strayer's curriculum, which focuses on business, accounting, information technology and similar practical subjects, and you'd expect Strayer to be printing money.

But it's not. For 2012, revenue was $562 million, down from $627 million in 2011 and $637 million in 2010, while per-share earnings tumbled to $5.79, from $8.91 the year before. In fact, it's hard to find a financial figure that hasn't moved the wrong way. The stock has fallen from near $112 last July to $48.84. Strayer suspended its dividend in November.

Strayer faces a lot of headwinds. College enrollment is falling, and Strayer's drifted down to 49,323 in 2012, from 56,002 in 2010. Lawmakers and regulators may clamp down on for-profit colleges that have poor graduation rates and leave students with loads of debt and jobless. Federal programs such as Pell Grants, a critical source of funding, could shrink over budget and debt concerns, and Strayer's future students could become ineligible for loans if too many of their predecessors fall behind on payments. Finally, Strayer's online study program faces growing competition from traditional nonprofit institutions responding to students' demand for low cost and convenience.

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4. Electronic Arts

Electronic games are hot — just ask anyone with a teenager glued to a PlayStation, Xbox or Wii. But the market is evolving, with console and PC players drifting away from less popular titles in favor of blockbusters such as 'Medal of Honor,' 'Madden NFL,' 'FIFA' and 'Battlefield,' all developed by Electronic Arts (EA). Over time, the trend will translate into lower sales for the industry as a whole, says Standard & Poor's, which has a 'strong sell' recommendation on EA.

Blame the extraordinary cost of developing a superstar game, which must have intense action and stunning animation, as well as more — and more-realistic — dialogue.

A better economy could prompt consumers to spend more on games, and EA may be successful with a new generation of titles for mobile devices and social-networking sites, two areas seen as the future of gaming. But these new types of games are less profitable, and competition to create mobile games is tough because new firms can easily meet the simpler technical requirements of small devices.

The Redwood City, Cal., company has recovered from the lean 2008-2011 period, during which it lost money each year. But even though 2012 revenues were near the peak reached in 2009, per-share earnings of 23 cents paled next to the record of $1.95 in 2004. The stock, at $17.58, trades for 16 times estimated profits for the year ahead.

Signaling the depth of EA's problems, CEO John Riccitiello resigned unexpectedly on March 18, not long after release of a survey showing industry sales down 27% in February. 'In our view,' says Argus Research, 'EA's problems are long-term, industry-wide issues, and may not be resolvable by a new CEO.'

5. Best Buy

It's the retailers' nightmare, 21st century-style: Customers flock to the store to see the latest product, they check competitors' prices on their smart phones, and then they buy online. Although it's not certain that this 'showrooming' phenomenon will swamp Best Buy (BBY) — which has countered by promising to match online prices — it does reflect the kinds of new-era challenges the big-box electronics chain faces. Computers, TVs, software and appliances are commodities, and Amazon, Costco and Walmart can sell them just as well as Best Buy, often for less. Moreover, movies and music are moving from DVDs and CDs to online or cable, threatening Best Buy's disc sales.

Making matters worse, more makers of high-tech gear are expected to follow Apple's lead and open their own stores, undercutting broad-based retailers. Best Buy is trying to fight back with the store-within-a-store concept, recently announcing a deal with Samsung, but many manufactures may prefer free-standing stores so that they don't have to share the take with a host.

The numbers are unsettling. In the fiscal year that ended in February, Best Buy reported a 7.5% drop in U.S. same-store sales of electronic items, and a 21.4% decline in entertainment sales, categories that make up 33% and 10% of revenue, respectively. Computer and mobile sales, which account for 44% of revenue, were up 7.5%, primarily from gains in smart phone and tablet sales. In the quarter that ended February 2, the Richfield, Minn., company reported a loss of $409 million, or $1.21 a share, not including restructuring and similar costs.

Best Buy recently weathered a nasty fight with its founder, Richard Schulze, who tried unsuccessfully to take the company private and on March 25 was named 'chairman emeritus.' That seems to have calmed things, and the stock has resumed its ascent — the shares have soared 106% so far this year, to $24.09. But who knows what internal power struggles may loom? The company plans to close some stores and reduce the size of others. That seems to make sense, but investors should be wary of any company aiming to shrink its way to greatness.

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6. J.C. Penney

If there's a slam dunk on this list, it's J.C. Penney (JCP), the venerable department store chain that has been the subject of one unflattering news story after another. A hot executive from Apple and Target was brought in to turn things around. Dismal results followed. His pay was slashed and then he was fired. And now? Well, who knows what's next? Penney's board seems lost.

In late 2011, troubled Penney encouraged shareholders and analysts by bringing in Ron Johnson as CEO. Then began a string of strategy flip-flops as Johnson groped for ways to boost sales: cutting back on discounts, then reviving them; focusing ads on lifestyle, then emphasizing low costs; moving toward a boutique-type store-within-a-store concept, then backing away. A deal with Martha Stewart looked promising, but it provoked a costly legal fight with Macy's.

The stock collapsed under Johnson, falling from nearly $43 in early 2012 to $14.62 today. In the fiscal year that ended in January, sales fell about 25% and Penney's board fired Johnson putting the Plano, Tex., firm back in the hands of his predecessor, Myron Ullman on April 8.

But wait — why not buy low and wait for the turnaround? Speculators see it that way, for sure; the stock jumped 5.5% on April 11. But retailing is highly competitive, and customers are demanding. They want high-quality products, rock-bottom prices and no-questions-asked returns. Long-term Penney shareholders need something to cling to, and all they have is a hope that customers are loyal enough to return if the chain makes some smart moves. What will those moves be? Who will make them? Right now, there's no turnaround strategy to analyze. Until there is, stay away.

Personal finance and investing writer Jeff Brown has written for The New York Times "You're the Boss" blog, The Street.com and Knowledge@Wharton, a journal of the Wharton School of the University of Philadelphia, where he also teaches writing. For 12 years he was the personal finance columnist at The Philadelphia Inquirer.