The Pros' Picks: 9 Stocks to Sell Now
Sometimes it pays to lock in some profits. Here are nine stocks to sell now, according to the pros, whose price targets are pointing much lower.
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 Oct. 8. Stocks are listed in order of their consensus analyst rating.
GrubHub
- Market value: $6.8 billion
- Year-to-date performance: 52.0%
- 3-month performance: 4.0%
- Analysts' average recommendation: 3.04 (Hold)
GrubHub (GRUB, $73.88) 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 has helped lift GRUB shares by more than 50% year-to-date.
However, GrubHub's stock is an ever-so-slightly bearish Hold, and shares are about 9% above analysts' consensus 12-month price target of $67.60, 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."
Xerox
- Market value: $4.3 billion
- Year-to-date performance: -45.3%
- 3-month performance: 33.3%
- Analysts' average recommendation: 3.25 (Hold)
COVID-19 has bitten Xerox (XRX, $20.16) in multiple ways.
The most apparent difficulty Xerox has faced is a slump in printer and other equipment sales. No wonder there: Office spending dried up as workers were sent home en masse and businesses started to feel the economic pinch. Consider that Xerox reported a 35.3% drop in second-quarter revenues to $1.5 billion, and an 81% plunge in profits to 15 cents per share.
But COVID also clipped Xerox's M&A aspirations. Xerox had made an unsolicited $30 billion-plus bid for rival HP (HPQ) in late 2019, which was rebuffed, leading to a proxy battle. However, in late March, the pandemic became Xerox's top priority, and the company was forced to withdraw its hostile bid.
"While it is disappointing to take this step, we are prioritizing the health, safety and well-being of our employees, customers, partners and other stakeholders," XRX said in a statement.
Xerox has rebounded strongly of late, but analysts seem to think this rebound is overdone. The pros – split among one Buy, five Holds, one Sell and one Strong Sell for a bearish Hold consensus – have a consensus $18 price target that sits more than 10% current prices.
“These are trough level multiples, a discount to the peer group, implying that the stock is currently undervalued,” writes JPMorgan analyst Paul Coster, who rates the stock at Underweight (equivalent of Sell). “That said, the firm faces secular challenges, disruption from COVID-19 and its ability to execute M&A seems constrained for now, so the equity story lacks catalysts.”
GoPro (GPRO)
- Market value: $980.1 million
- Year-to-date performance: 43.1%
- 3-month performance: 28.6%
- Analysts' average recommendation: 3.33 (Hold)
The early promise of GoPro (GPRO, $6.21), which went public in 2014 at $24 per share, has never really quite panned out. The action-camera maker is worth just more than a quarter of what it was thanks to a host of missteps.
Among them? The company's aspirations to be "an exciting new media company" never really materialized. The Hero 4 Session, launched in 2015, was a massive flop that couldn't gain traction even after two separate price drops. It tried to expand into the drone market but was drowned out by the competition. And through no fault of GoPro's own, Wall Street seemed to overestimate the potential demand for its core product.
To GoPro's credit, however, it's getting something right. GPRO shares recently popped after the firm announced that its subscription service had seen a significant jump in September, with 100,000 people signing up to reach 500,000 subscribers. GoPro, like so many other companies in the tech space, are chasing the golden goose of recurring revenues. But it's important to note that many of these additions aren't yet paying for the service – a truer test of the service's potential is how many paying subscribers end up sticking around.
Wedbush's Michael Pachter, who rates GPRO at Neutral, sees at least a little reason for optimism.
"GoPro has accelerated plans to streamline its business, with hopes that it can continue to attract its core enthusiasts to its highest-tier products while driving meaningful growth in ongoing subscription revenue," he writes. "With a significantly lower barrier to profitability, we think GoPro may claw its way back to profitability as soon as this year."
But GPRO has exceeded the analysts' average price target of $4.83 per share by nearly 30%, so it's possible the company is due to cool off. For now, analysts are lukewarm on the stock, with one Strong Buy versus three Holds and two Strong Sells.
Community Health Systems
- Market value: $555.0 million
- Year-to-date performance: 60.0%
- 3-month performance: 45.0%
- Analysts' average recommendation: 3.36 (Hold)
Community Health Systems (CYH, $4.64) 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 45% gains over the past three months.
But it's possible Community Health Systems has outkicked its coverage, given a bearish-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 another 14% 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."
U.S. Steel
- Market value: $1.9 billion
- Year-to-date performance: -25.0%
- 3-month performance: 23.5%
- Analysts' average recommendation: 3.54 (Sell)
U.S. Steel (X, $8.53), like so many other cyclical stocks whose fates are tied to global economic strength, could shift into gear in a hurry on headlines such as additional fiscal stimulus or a breakthrough in the fight against COVID-19.
The integrated steel producer has lost a quarter of its value in 2020 as the pandemic only compounded its headaches. President Donald Trump's 25% steel tariffs, which were implemented in 2018, did bring down imports of foreign steel. Nonetheless, steel prices have been in a downward trend for more than two years, and X shares are off 75% since the start of 2018.
Unfortunately, the industry could be in for more pain for a while more.
"Into 2021, US steel demand remains weak. Specifically, construction demand is mixed with non-residential construction starts down ~40% but residential construction robust," write UBS analysts. "UBS' auto team estimates sales will trend below pre-COVID levels until 2022, while energy steel demand remains under pressure at (sub-$50 per barrel) oil prices. This should reverse current price momentum once restocking (read; pent up demand) fizzles out (likely around November), according to our estimates."
Broadly speaking, the analyst community is bearish on X shares, with eight pros calling the stock a Hold, three calling it a Sell and two saying it's a Strong Sell. Moreover, they have a price target of $5.39 per share that implies 37% downside from current prices.
Credit Suisse analysts (Underperform, equivalent of Sell) raise concerns about U.S. Steel's cash flow.
"We forecast X to remain (free cash flow) negative with an estimated total FCF burn of ~$1.7bn over 2020/2021," they write. "X is facing significant volume loss in the medium term and should also see some unit cost pressure in 2H on the reduced footprint and ongoing idle costs."
Dillard's
- Market value: $937.2 million
- Year-to-date performance: -42.8%
- 3-month performance: 79.4%
- Analysts' average recommendation: 3.80 (Sell)
There's no secret behind Dillard's (DDS, $41.88) struggles in 2020. The department-store chain was forced to close its 260 stores during the height of the pandemic, and despite loosened restrictions, traffic isn't anywhere near what it was in more normal times.
That said, DDS shares have run up by nearly 80% over the past three months, and curiously enough, extreme bearishness might be partly responsible.
In mid-August, the company reported a 35.6% decline in revenues to $919 million that was worse than expected; reopened stores were recording revenues that were about 72% of the year-ago period's sales. But Dillard's also announced a narrower-than-expected second-quarter loss of 37 cents per share, which was far better than analysts' expectations for a $4.54 deficit, as inventory and expense controls boosted gross margins.
This effectively triggered a trap for the bears. At the end of July, we wrote that Dillard's was one of the most shorted stocks on Wall Street. Some 85% of Dillard's tradable shares were "sold short," which means someone borrowed shares to sell them with hopes that they could buy later at lower prices. But the good news triggered a "short squeeze," where investors who are short DDS stock and want to exit before they lose more are forced to buy shares back to close their trades, creating additional buying pressure and sending shares even higher.
That fuel might be waning, however, as short interest has dropped to about 30% of tradable shares.
Meanwhile, DDS shares have shot 56% higher than the pros' average price target of $26.80, and analysts – who have two Holds, two Sells and one Strong Sell rating on the stock – don't see much reason for additional optimism.
"We think investors are under-estimating the issue of saturation in the U.S. retail market and, as we learned from the '08 Financial Crisis, the retailers most mired in debt and lagging in omni-channel run a real risk of going bust (DDS doesn't have a mobile app)," writes CFRA's Camilla Yanushevsky, who rates the stock at Sell.
"We reiterate our negative stance on the stock long-term given lackluster top-line trends (even outside of the pandemic) and our overall cautious view on the dept. store group," chimes in Deutsche Bank's Paul Trussell, who also has DDS at Sell.
Gannett
- Market value: $204.5 million
- Year-to-date performance: -76.8%
- 3-month performance: 27.6%
- Analysts' average recommendation: 4.00 (Sell)
USA TODAY owner Gannett (GCI, $1.50) 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 $1.50 price per share as 33% too 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."
Signet Jewelers
- Market value: $1.1 billion
- Year-to-date performance: -3.8%
- 3-month performance: 104.4%
- Analysts' average recommendation: 4.00 (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 $12.75 per share means the stock could lose 29% of its value before being fairly priced.
"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."
National Beverage
- Market value: $3.8 billion
- Year-to-date performance: 50.1%
- 3-month performance: 16.6%
- Analysts' average recommendation: 4.00 (Sell)
National Beverage (FIZZ, $77.05) 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, while two are on the sidelines at Hold. As a group, they believe the stock's fair value is some 13% lower.
