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All Contents © 2018The Kiplinger Washington Editors
By Daren Fonda, Senior Associate Editor
| November 30, 2016
Pitches to buy stocks are Wall Street’s driving force. But analysts rarely slap stocks with a “sell” rating. That’s partly because it’s too easy to get a sell recommendation wrong. Even if a stock looks overpriced, the shares can stay afloat for ages. With those caveats in mind, here are five stocks we think are good candidates to unload now.
Need somewhere to put the money you've freed up? See our picks for 8 stocks to buy for 2017.
Stocks are listed alphabetically. Prices are as of November 9
Xnatedawgx via Wikipedia
Share price: $38
First up: BJ’s Restaurants, a chain of 185 brew-pub-style eateries. Profit margins have been declining, due in part to rising labor costs, and sales have been sluggish. To help bolster earnings, BJ’s is cutting costs and plans to open fewer new stores in the coming year. But those measures may not be enough to meet or beat Wall Street’s forecast that profits will rise by 11.5% in 2017. Brokerage firm Stifel says sell; it expects the stock to drop to $30 over the next 12 months.
Shaun Greiner via Wikipedia
Share price: $19
Weak prices for oil and other commodities, along with a slowdown in China’s economy, are crimping demand for construction and mining equipment made by Caterpillar. The firm recently cautioned that sales in 2017 won’t improve much over 2016. Yet its stock soared by 27% in the first 10 months of 2016. CAT now trades at 27 times estimated earnings, well above its 10-year average P/E of 16, says Jim Corridore, an analyst with S&P Global Market Intelligence. He expects the shares to slide to $63 over the next 12 months.
Canadian Family via Wikipedia
Share price: $90
Farm equipment maker Deere looks vulnerable. Weaker crop prices in the U.S. and overseas are likely to pressure farmers’ income, lowering demand for Deere’s tractors and other machines, says Corridore. Overall, he sees Deere’s revenues sliding 2% in the fiscal year that ends in October 2017. Even at $80 a share—Corridore’s 12-month price target—Deere would fetch a P/E of 21, based on estimated earnings for the current fiscal year, which would be at the high end of its range over the past decade.
Courtesy Procter & Gamble
Share price: $86
Procter & Gamble is slimming down to try to become more profitable. But the maker of big-name products such as Bounty and Tide is still struggling to grow. Analysts expect sales to inch up 2.6% in calendar 2017, with profits climbing 8.8%. That’s less than the 12% estimated profit growth for companies in Standard & Poor’s 500-stock index. And P&G looks pricey at 22 times estimated year-ahead earnings, compared with 17 for the S&P 500. Although we like P&G’s 3.1% dividend yield, low growth and a high P/E rarely make for a winning stock.
Steve Jurvetson via Flickr
Share price: $190
Throwing a wrench into electric-car maker Tesla Motors isn’t easy. The company delivered 24,821 vehicles in the third quarter of 2016, up 114% from a year earlier, and aims to build 500,000 cars a year by 2018. But Tesla’s stock may not match its sales success. UBS says it’s unlikely that Tesla will be able to sell its mass-market Model 3, due in late 2017, at a profit. UBS believes that Tesla is overestimating future sales and that the company will need a huge cash infusion to fund its expansion plans. This is a high-risk stock that could bounce higher in 2017. But investors shouldn’t ignore “fundamental headwinds” afflicting the firm, says UBS, which rates the stock a sell, expecting it to fall to $160 over the next year.
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