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All Contents © 2020The Kiplinger Washington Editors
By Dan Burrows, Contributing Writer
| February 7, 2018
Shares across the board have gotten a lot cheaper over the past few sessions. However, while some values have been created, other well-known names continue to be stocks to sell – even at today’s lower prices.
Ordinarily, bargain hunters welcome indiscriminate selling of the type we’ve seen recently. It makes shares of good companies that much cheaper. It also can make the stocks of more troubled companies fairly reflect the issues they face, giving investors a chance to speculate without overpaying for the privilege.
But that doesn’t mean the market tide has gone out far enough to make everything a buy.
Take the five worrisome stocks we identify below. Be it existential uncertainty, regulatory purgatory or just a time to take profits, the majority of analysts are set against these names. At best, they’re holds, likely to have no more than a neutral effect on your portfolio. At worst, they could act as a drag on your returns.
As tempting as it might be to go for a rebound ride on some of these famous names, don’t do it. The balance of risk and reward is not in your favor. The fundamentals and analysts make it plain. These are stocks to sell.
Data is as of Feb. 6, 2018. Companies are listed in alphabetical order. Dividend yields are calculated by annualizing the most recent quarterly payout and dividing by the share price. Analysts’ ratings provided by Zacks Investment Research. Click on ticker-symbol links in each slide for current share prices and more.
Courtesy Proshob via Wikimedia Commons
Market value: $8.6 billion
Dividend yield: N/A
Analysts’ opinion: 4 strong buy, 0 buy, 19 hold, 1 sell, 3 strong sell
How bad is the outlook on Chipotle Mexican Grill (CMG, $304.33)? Analysts at UBS downgraded the stock to “Sell” even before the troubled fast-casual restaurant chain posted earnings after the closing bell Tuesday, Feb. 7. Increased competition, growth concerns and a pricey stock led analyst Dennis Geiger to throw in the towel on a company that can’t seem to overcome a negative reputation for food safety.
“New product launches and increased marketing activity have not meaningfully accelerated growth,” Geiger says. “We believe CMG is facing a new normal rather than an ongoing recovery.”
The company’s fourth-quarter earnings report didn’t make things any better. Profits of $1.32 per share fell 2 cents short of the consensus estimate, triggering a selloff the following morning. Stifel analysts downgraded the stock to “Sell” shortly after the report, saying “We expect negative traffic to persist. The company seems to be relying on easier comparisons this summer, rather than any initiatives to reverse the trend.” The analysts also worry about potential difficulties transitioning to a new CEO amid current chief and CEO Steve Ells’ plan to remain as executive chairman.
Bulls have been betting on a Chipotle comeback ever since its food-borne illness scandal first erupted in the summer of 2015. It just hasn’t happened. CMG is off almost 25% during the past 52 weeks vs. a 17% gain for Standard & Poor’s 500-stock index. This stock is cooked, and it has been for some time.
Market value: $13.9 billion
Dividend yield: 4.9%
Analysts’ opinion: 3 strong buy, 0 buy, 16 hold, 1 sell, 2 strong sell
If you were lucky enough to go along for the ride with Seagate Technology (STX, $48.68) during its epic recent run, congratulations – but it’s time to take your profits.
The sleepy maker of hard drives soared 32% in January, and not just because of quarterly results, which were good but not great (Seagate easily beat profit expectations, but revenue grew just 0.7% and barely topped the consensus estimate.)
Also, at least part of the rally appears to have been driven by cryptocurrency fever, which has suddenly gone cold. It appears much of the excitement over Seagate lately was driven by rumors of company’s connection to Ripple, a digital currency. Unfortunately, Ripple is now in free fall, and it could be taking STX down with it.
Whatever happened in January was wildly out of character for this dowdy, high-yield dividend payer.
Market value: $245 million
Analysts’ opinion: 0 strong buy, 0 buy, 0 hold, 0 sell, 2 strong sell
Anyone still holding on to Sears Holdings (SHLD, $2.28) must be either a blind optimist or a penny-stock speculator.
As we have noted before, Sears has racked up 10 consecutive years of falling sales and hasn’t reported a profit since 2011. The company has a market value of less than $250 million, which is paltry. It’s stuck in a cycle of selling assets, closing stores, laying off workers and borrowing money to stay afloat. Most recently, on Jan. 31, Sears said it would lay off 220 more employees at its headquarters, then on Feb. 1, it disclosed $210 million more in loans during the previous month. The balance sheet is atrocious, with $200 million in cash against $4.5 billion in net debt, according to S&P Global Market Intelligence data.
Sadly, the iconic American retailer has been circling the drain for ages. A quarter-century of pressure from big-box retailers such as Walmart (WMT) and Target (TGT) on one side, and e-commerce operators such as Amazon (AMZN) on the other, has sounded the death of the mall, and made shares in SHLD a screaming sell.
Market value: $5.5 billion
Analysts’ opinion: 4 strong buy, 0 buy, 13 hold, 1 sell, 10 strong sell
Wall Street analysts think very little of Under Armour (UAA, $13.10) these days, and they’re right to. To get a sense of how out of favor the athletic apparel and footwear maker is, consider that “Sell” calls are exceedingly rare, and yet Zacks counts 11 of them for UAA shares.
Thus, despite the fact that Under Armour’s stock has declined 36% over the past 52 weeks, analysts still believe it looks like a falling knife.
The primary issue is that intense competition – including the likes of Nike (NKE) and Adidas (ADDYY) – is hammering profits. Analysts expect Under Armour to merely break even when it reports results on Feb. 13, down from 23 cents per share in the year-ago period. For the full year, analysts estimate an EPS plunge from 45 cents to a mere 19 cents.
Analysts at Canaccord Genuity, who rate shares at “Sell,” are bracing for another drop in UA shares, as they see “no stabilization is in sight.”
Market value: $280 billion
Dividend yield: 2.4%
Analysts’ opinion: 8 strong buy, 0 buy, 11 hold, 1 sell, 5 strong sell
Wells Fargo (WFC, $57.28) continues to pay dearly for its phony accounts scandal, and that makes it much harder to be bullish on shares at this point.
The Federal Reserve last week slapped WFC with an order that restricts the bank’s growth until it makes changes to its corporate governance and risk controls. It was Janet Yellen’s last act as Federal Reserve chair, and while arguably deserved, it was a doozy.
Analysts at Credit Suisse, who rate WFC at “Neutral” (Equivalent of “Hold”), noted dryly that the “order highlights that Wells Fargo is having a hard time putting past mis-steps in the rearview mirror.”
Wells Fargo’s balance sheet is in handcuffs, adding a thick layer of uncertainty to its growth prospects. As you may have heard, the market hates uncertainty. Moreover, this comes at precisely the long time – when higher interest rates and lower corporate taxes are expected to provide a booster shot to banks’ operations, and likely their stocks. Why buy WFC when most other banks are unshackled?
We’ve been bullish on WFC on more than one occasion in the past. After all, it’s one of Warren Buffett’s holdings and has been an exemplary stock for retirement. Unfortunately, circumstances have changed drastically since the Federal Reserve lowered the boom.
Wells likely will be a buy again someday, but for now the risk is to the downside.