Running with the “in crowd” can be disastrous. In this case, we’re talking about stocks to sell, and not good kids who fall in with popular students who lack bright futures.
The danger here isn’t heading down the wrong path and squandering one’s future potential. Instead, the in crowd here relates to stocks that have broad ownership. That can be a real detriment because broad ownership implies that the market has correctly placed its collective capital behind shares with bright futures. That impression causes demand to rise, bringing prices higher.
Of course, this doesn’t always pan out. This year is littered with once heralded shares that have since declined. Some may never rebound.
That’s what this list is all about: Stocks that are broadly held but to be wary of. Time will tell, of course, but the companies listed above look to be in position to decline further despite wide holdings.
|IBM||International Business Machines Corporation||$137.06|
|GE||General Electric Company||$69.10|
|SOFI||SoFi Technologies, Inc.||$5.94|
|AMC||AMC Entertainment Holdings, Inc.||$12.77|
|HOOD||Robinhood Markets, Inc.||$7.05|
|BYND||Beyond Meat, Inc.||$25.56|
Stocks to Sell: International Business Machines (IBM)
There are a few reasons investors could be persuaded to purchase International Business Machines (NYSE:IBM) stock right now. The legacy computer company had a stronger than expected quarter when it last reported earnings. Revenues reached $14.2 billion, ahead of the $13.78 billion Wall Street was expecting. That was driven by a renewed focus on the cloud, with the firm’s hybrid cloud being heralded as responsible for the surge. If that weren’t enough, IBM has also been lauded for its very attractive dividend that yields above 4.5%.
But buyer beware. For one, IBM’s profits reached $733 million during the period. That was far lower than the $955 million profit figure it posted a year earlier. Further, IBM has trouble in the form of Kyndryl (NYSE:KD), the IT arm spun out from IBM earlier.
IBM was recently ordered to pay $1.6 billion to BMC for work the two companies performed for AT&T (NYSE:T). That work was performed by IBM business divisions that now operate under the Kyndryl name, thus IBM claims it shouldn’t be on the hook for the damages. That inherent risk coupled with declining profits ought to make investors think twice.
General Electric (GE)
General Electric (NYSE:GE) is a story of an American industrial titan in decline. As much as you want to root for it, the stock’s broader trajectory seems to serve as a fair warning against doing so.
Any long-term investor that’s established a position in GE in the last two decades will likely attest to that notion. In that time period, GE has gone through stretches where its value slowly creeps upward only to bust, taking shareholder capital with it.
The company is attempting to manufacture a turnaround yet again. This time it is reorganizing its corporate structure, spinning off its renewable energy and healthcare units. The thesis will of course be that it can then find renewed efficiency in those leaner operations.
Last year GE undertook a stock split to prop up flagging shares. That temporarily worked, only to later taper off. That’s the broader story of GE.
SoFi Technologies (SOFI)
Investors who were considering purchasing shares of SoFi Technologies (NASDAQ:SOFI) stock should tread carefully.
For one, the company is considering a reverse stock split which will be up for a vote at the upcoming July 12 annual shareholders meeting. In general, a reverse stock split is a very negative sign. In a reverse stock split, a company decreases the number of shares outstanding in order to inflate the value of the remaining shares.
Such moves are often viewed as a way to artificially increase price while underlying fundamentals remain unchanged. The move comes after SOFI stock has lost roughly 60% of its value this year.
The other reason to remain skeptical of SoFi is that the student loan debt forgiveness debate remains muddled. The stock plunged when the Biden administration announced its latest extension of the moratorium in early April. Now that Biden’s administration has delayed any concrete moves again until later this summer, another possible extension appears very possible.
Stocks to Sell: AMC Entertainment (AMC)
The bull thesis for AMC Entertainment (NYSE:AMC) stock is generally that the retail investors that have propped it up, continue to have the power to do so. The idea is that the next catalyst might be the one to ignite another short squeeze.
Although short interest in AMC stock remains very high the box office success of Top Gun: Maverick isn’t the tinder to stoke another fire. I recently wrote that the economic reality of Top Gun can’t negate AMC’s history of losses. AMC lost $337 million in its last reported quarter.
This article implies that AMC controls roughly one-third of screens and makes gross proceeds of 60% on that market position. So, long story short, Top Gun: Maverick’s current $357 million box office likely results in roughly $70 million in gross proceeds thus far.
It’s a very positive step in the right direction to be sure, but it simply can’t negate the implications of a $337 million loss in the previous period.
There isn’t that much to report when it comes to Snap (NYSE:SNAP) stock. There’s no gotcha moment when it comes to late May news the company issued. That news was that the company doesn’t expect to meet the low end of its prior revenue and EBITDA guidance for Q2. in other words, there’s nothing suggesting that investors should buy SNAP stock based on s silver lining.
There isn’t one. Snap had its worst month ever and has declined in eight of the last nine months along with the last three in a row.
Part of the reason is that ad revenues aren’t what they once were. Increasingly advertisers are turning to Instagram and TikTok where Snap had been favored. As long as competitors are seen as being more capable of adjusting to Apple’s (NASDAQ:AAPL) privacy changes Snap will continue to suffer.
Robinhood Markets (HOOD)
There isn’t much good news around Robinhood (NASDAQ:HOOD) stock. A month and a half ago the news was disappointing earnings. The $299 million in revenue the firm reported fell short of the $335 million Wall Street was anticipating. That resulted in the 38-cent EPS loss Wall Street sought being worse, reaching negative 45 cents.
That earnings disappointment came on the heels of news that the company intended to lay off 9% of its workforce.
You can blame it on the decline of Reddit-fueled enthusiasm for crypto trading that brought the platform to prominence. And as long a quantitative tightening continues that trend looks to continue.
On top of that trouble, Robinhood is now dealing with proposed SEC rule changes that will limit its business further. Those rules will make the market more competitive as it relates to payment order flow, in turn hurting Robinhood.
Stocks to Sell: Beyond Meat (BYND)
When growth stocks were the rage, Beyond Meat (NASDAQ:BYND) stock was riding high. Investors had little concern about the company’s lack of efficiency or losses. All that mattered was that the alternative meat market seemed hot and the company showed growth.
But now that the U.S. is shifting away from a prolonged period in which capital was inexpensive, growth is out. Investors certainly care now that Beyond Meat posted a net loss of $100.5 million. And those who may have still been on board jumped ship when EPS losses reached $1.58 on the expectation of 98-cent losses.
The vague notion of becoming “tomorrow’s global protein company” has lost a lot of its luster as losses widen.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.