While it’s an uncomfortable topic, every investor must face the prospect of stocks to sell. Like it or not, market success doesn’t just come down to picking winners. It also involves letting go of underperforming assets before they sink your portfolio.
Let’s imagine that you’re the general manager of a baseball club with a tradition of winning, like the New York Yankees. You can’t let emotions cloud your judgments. You only have limited space in your roster. Therefore, if a player just isn’t making the cut – too old, lack of talent, injuries piling up, whatever – you have to make the tough decision.
Otherwise, you keep a struggling player on your team for too long and you start losing games. After a long season, you might not make the playoffs. And then it’s your job on the hot seat. So, don’t let emotions get in the way. Make the cuts to protect your team and yourself. With that, below are seven stocks to sell, unfortunately.
Cano Health (CANO)
A healthcare firm focused on providing primary care services to seniors, Cano Health (NYSE:CANO) emphasizes value-based care. In other words, it prioritizes holistic health for its patients to prevent illnesses, thus improving outcomes and potentially lowering costs. It all sounds great on paper. Sadly, though, CANO isn’t getting it done, losing nearly 83% so far this year.
Though it might seem to speculators that it offers extreme value (given its 0.02X multiple to revenue), CANO is one of the stocks to sell. While the company does feature impressive revenue growth, a major headwind centers on its negative free cash flow (FCF). On a trailing-12-month (TTM) basis, Cano is burning $149 million. With only $28 million at the end of the second quarter, that’s a huge dilemma.
Also, institutional options traders appear to be goading retail traders into speculating in CANO stock. I say that because Fintel’s options flow screener – which targets big block trades – shows a heavy volume of sold calls expiring on Jan. 19, 2024. Basically, these trades reflect a belief that CANO will not move higher, allowing option writers to collect maximum premiums.
Billed as a global leader in dental implants and spine innovations, ZimVie (NASDAQ:ZIMV) appears a relevant enterprise. As a healthcare specialist, ZimVie theoretically is somewhat insulated from economic pressures. Essentially, when you suffer health concerns, you’ll pay to get yourself fixed up. Unfortunately, the market doesn’t think so, sending ZIMV down almost 13% since the start of the year.
Further, the negativity accelerated in recent sessions, with shares slipping 18% in the trailing month. Financially, what makes ZIMV a possible candidate for stocks to sell is the erosion in its top line. On a TTM basis, the company posts revenue of $894 million, down 2.2% against 2022’s tally. And last year was down from 2021’s result of $1.01 billion.
Also, after being FCF positive, this metric slipped $1.9 million in the red last year. On a TTM basis, it’s down $32.4 million below breakeven. Also, analysts rate ZIMV a moderate sell, though with a $13 price target implying over 55% upside.
Territorial Bancorp (TBNK)
Given my recent coverage of Hawaii-based enterprises, I’m probably not going to make too many friends from the great state. However, Territorial Bancorp (NASDAQ:TBNK) sadly came up on TipRanks’ screener for stocks to sell; specifically, for securities printing bearish technical analysis chart patterns. While Territorial may be Hawaii’s best checking account (per its website), Wall Street hates it.
Since the January opener, TBNK dropped more than 65% of its equity value. In the past 60 months, TBNK fell nearly 71% so the volatility is no fluke. The red ink also has its basis in the financial print. Worryingly, in Q2 of this year, Territorial suffered a decline in both net interest and non-interest income. I get the latter. However, I don’t get the former given the high interest rate environment.
If you look at other top banks – both the majors and the regionals – you’ll see a significant expansion of net interest income. Yes, higher borrowing costs hurt sentiment but many people and entities have little recourse. Analysts peg TBNK as a moderate sell with a $12.50 target, implying almost 49% growth.
Virgin Galactic (SPCE)
A once-promising enterprise that aligns with the burgeoning space economy, Virgin Galactic (NYSE:SPCE) may be on life support. Occasionally, SPCE may produce some pops, such as the near-5% gain it posted on the Oct. 17 session. However, looking at the bigger picture, Virgin Galactic likely represents one of the stocks to sell. There are just too many problems here.
First, SPCE failed to gain traction this year. Since the January opener, shares fell almost 48%. In the past 365 days, the stock gave up nearly 61% of its equity value. Sadly, we’re not just dealing with market sentiment. Rather, the financials showcase a risky business. In particular, at the end of Q2 this year, the company ran a capex-to-revenue ratio of 5.26X.
Looking at the competition – including other space economy ideas – SPCE’s capex multiple soars to the moon. What this metric and context tell us is that Virgin Galactic is not only operating a capital-intensive business, but its peers don’t share the same problem. Unsurprisingly, analysts rate SPCE a moderate sell, though with a $2.42 target implying 32% upside.
Service Properties (SVC)
Structured as a real estate investment trust (REIT), Service Properties (NASDAQ:SVC) has over $11 billion invested in two asset categories: hotels and service-focused retail net lease properties. As of the end of calendar Q2 2023, Service owned 221 hotels that accommodate over 37,000 guest rooms throughout the continental U.S., Puerto Rico, and Canada.
With the revenge travel phenomenon still running hot, SVC has been able to stay above water. Since the start of the year, shares gained nearly 7% of market value. However, in the past one-year period, they’re down 3%, which isn’t that promising. Making matters worse, the top line shows signs of erosion. And that may indicate that consumer sentiment for travel is fading.
On a TTM basis, Service is printing a sales tally of $1.89 billion. That’s only marginally better than the $1.86 billion posted in 2022. Yes, it’s an improvement from 2020’s haul of only $1.265 billion. Then again, in 2019, the company rang up sales of $2.32 billion. Overall, analysts rate SVC a moderate sell with an $8 target, implying under 5% growth.
Sunstone Hotel (SHO)
If revenge travel sentiments fail to sustain themselves, then Sunstone Hotel (NYSE:SHO) could be at risk of becoming one of the stocks to sell. Another REIT tied to the travel and vacation industry, Sunstone probably puts some outside observers in a bad mood with its word salad. Anyways, SHO isn’t impressing investors, with shares up just under 1% for the year.
However, in the past 365 days, SHO slipped almost 10%, presenting anxieties for would-be speculators. If revenge travel is still a thing, Sunstone is having difficulty proving it. And it’s not just the technical chart that’s emitting the warnings. On the financials, the growth in the top line no longer impresses market participants. If the company doesn’t deliver in Q3 and beyond, SHO could easily be one of the stocks to sell.
Yes, it saw increased revenue in Q2 this year. However, on a TTM basis, revenue of $1.01 billion is only 10.5% more than the $912 million posted in 2022. However, with 2020 and 2021 sales landing at $268 million and $509 million, respectively, investors have come to expect gargantuan growth. That’s just not happening right now.
A major American designer and marketer of children’s apparel, Carter’s (NYSE:CRI) should be a predictably relevant enterprise. With the U.S. holistically representing the best nation in the world, our population rises through a combination of natural births and immigration. Supposedly, then, Carter’s should benefit from a large total addressable market. However, investors apparently don’t think so, sending CRI down more than 7%.
They have good reason to be concerned, which is why CRI ranks among the possible stocks to sell. For example, in Q2 of this year, Carter’s posted revenue of $600 million. That’s down more than 14% against the year-ago quarter. However, with the downturn comes the argument that CRI could be undervalued.
To be fair, shares trade at a forward earnings multiple of 11.58X, lower than the sector median of 13.52x. However, if consumer confidence continues to be poor, CRI risks being a value trap. Finally, analysts peg CRI a moderate sell with a $66.25 target, implying almost 5% downside risk.
On the date of publication, Josh Enomoto 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.