When it comes to certain stocks to sell, being overly optimistic can become a liability. No, this is not a popular topic by any means, usually arousing anger among the investing faithful. However, everyone must realize that when it comes to money, it’s best to look out for number one. And if that means dumping shares, so be it.
To lessen the possible guilt associated with targeting stocks to sell, the matter has been forced out of our hands. With the Federal Reserve committed to its hawkish monetary policy, risk-on names suffer disproportionately due to higher borrowing costs. In turn, this dynamic limits business activity, often leading to sharp market losses. Frankly, you want to be ahead of the crowd in this exercise.
To navigate this sensitive topic, I used Gurufocus.com to extract some of the worst offenders among stocks to sell. This way, we’re largely dealing with an objective assessment based on hard numbers and little else. So, if you’re ready, here are the stocks to sell before the year ends.
| RCL | Royal Caribbean | $54.75 |
| GOL | Gol Intelligent Airlines | $4.00 |
| SRNE | Sorrento Therapeutics | $1.52 |
| HRTX | Heron Therapeutics | $3.41 |
| AREC | American Resources | $1.71 |
| MARK | Remark Holdings | $0.27 |
| AIU | Meta Data | $1.09 |
Royal Caribbean (RCL)
A famous global cruise ship holding company, Royal Caribbean (NYSE:RCL) has been one of the hardest-hit companies during the coronavirus pandemic. With few people willing to be around complete strangers in tight quarters, Royal and its ilk became victims of circumstance. Unfortunately, even with the return to normal, RCL never quite gained momentum. On a year-to-date basis, RCL dropped over 33% of its equity value.
To be fair, Royal Caribbean shares gained nearly 23% in the trailing month. Much of the enthusiasm centered on the company’s third-quarter earnings report, where it beat the consensus earnings estimate. However, management also reported disappointing guidance for the current quarter. For those that take a holistic view of their investments, they might want to heed Gurufocus.com’s warning: RCL may represent a value trap.
While certain metrics like its forward price-earnings ratio coming in below the industry median seem attractive, both sales and earnings projections are poor. Plus, the company features a weak balance sheet. Notably, its Altman Z-Score is 0.26 below parity, reflecting high bankruptcy risk in the next two years.
Gol Intelligent Airlines (GOL)
Headquartered in Rio de Janeiro, Brazil, Gol Intelligent Airlines (NYSE:GOL) is a low-cost carrier. Like the cruise ship operator industry, the airlines suffered disproportionately during the initial onset of the Covid-19 crisis. During the recovery process, certain companies performed better than others. Unfortunately, GOL hasn’t been able to gain much positive traction. Since the start of the year, shares fell nearly 36%.
On the surface, certain valuation metrics seem to point positively for Gol Intelligent. For instance, the company’s price-to-sales ratio is 0.33 times, far below the transportation industry’s median of 1.02. However, the enterprise’s growth and earnings trajectories are suspect. Mainly, revenue growth on a per-share basis and profitability margins ping well below breakeven.
In addition, the company’s balance sheet raises significant questions. For instance, its Altman Z-Score slipped 2.31 points below parity, reflecting substantial distress and bankruptcy risk. Also, Gol’s cash-to-debt ratio is only 0.02 times, extremely low for the industry. Sadly, then, GOL represents one of the stocks to sell.
Sorrento Therapeutics (SRNE)
A biotechnology firm, Sorrento Therapeutics (NASDAQ:SRNE) garnered much popularity during the early phase of the new normal. Primarily an oncology specialist, Sorrento made a hard pivot to Covid-19, developing both treatment alternatives and vaccines. Unfortunately, fears of the SARS-CoV-2 virus faded and subsequently so too did SRNE’s bullish narrative. Shares fell nearly 70% YTD.
While it might be tempting to pick up shares on “discount,” the reality may be that SRNE is one of the stocks to sell. Frankly, its financial prospects leave much to be desired. For instance, in Q2 2022, Sorrento suffered declines in revenue and expansions of net losses on a year-over-year basis. More critically, investors may take a dim view of the massive share dilution that occurred between the start of the new normal till now.
Aside from that, Sorrento features other red flags associated with stocks to sell. Primarily, the company features a weak balance sheet, with an Altman Z-Score of 5.5 below parity. Again, this reading indicates significant distress and bankruptcy risk over the next two years.
Heron Therapeutics (HRTX)
Another biotechnology firm, Heron Therapeutics (NASDAQ:HRTX) seeks to improve the lives of patients by developing novel, best-in-class treatments to address some of the most important unmet patient needs, per its website. Though a noble pursuit, the harsh reality is that Wall Street isn’t giving HRTX much of a chance. Since the start of the year, HRTX stock slipped 66%.
Unlike some other stocks to sell, Heron doesn’t enjoy the excuse of pointing to positive near-term momentum. Instead, over the trailing month, HRTX fell a worrying 28%. One of the biggest issues with the underlying company centers on stability (or lack thereof). For instance, its cash-to-debt ratio is only 0.53 times, below nearly 89% of its peers.
Further, the company suffers from declining sales trends. For instance, its three-year revenue growth rate on a per-share basis sits 6% below parity. That’s worse than 61% of the underlying sector. Combined with negative operating and net margins, HRTX easily ranks among the stocks to sell.
American Resources (AREC)
Billed as a next-generation, socially responsible, supplier of raw materials, American Resources (NASDAQ:AREC) focuses on the new infrastructure and electrification market. Per its website, the company’s products go to produce steel, alloys, and lithium-ion batteries, among other applications. However, the Street doesn’t give much of a chance for AREC, with shares sliding over 17% YTD.
Fundamentally, American Resources appears like a major value trap, according to data from Gurufocus.com. Yes, AREC trades at 5.3 times forward earnings. In contrast, the industry median is 5.8 times, suggesting a somewhat undervalued proposition. However, both its revenue growth rate on a per-share basis and its net margin ping deeply below breakeven. Therefore, under an environment of monetary tightening, circumstances appear unfavorable for AREC.
Also, American Resources suffers from poor fiscal stability. For instance, the company’s Altman Z-Score is 5.8 points below parity, reflecting strong bankruptcy risk. Also, its cash-to-debt ratio is middling for the industry. With headwinds rising, it’s time to consider AREC as one of the stocks to sell.
Remark Holdings (MARK)
According to its website, Remark Holdings (NASDAQ:MARK) is a global leader in video analytics with one of the most intelligent, reliable, and fast artificial intelligence platforms. The company gained a cult following of sorts during the onset of the Covid-19 crisis. However, at the moment, it’s one of the stocks to sell, with shares trading hands at only 27 cents a pop. Since the beginning of the year, MARK hemorrhaged over 74% of its equity value.
From a technical perspective, MARK appears to be dead money. In the trailing month, shares lost about 8.5%. Fundamentally, several red flags have sprouted. Perhaps most notably, the balance sheet is a mess. For example, Remark’s Altman Z-Score fell nearly 15 points below parity, signifying a deeply distressed business. As well, its equity-to-asset ratio of 0.19 times below breakeven ranks worse than 95% of the underlying industry.
Not surprisingly, the company features red ink on both its three-year revenue growth rate and net margin. With forward prospects dimming, it’s best to consider MARK as one of the stocks to sell.
Meta Data (AIU)
Based in China, Meta Data (NYSE:AIU) offers education services. Specifically, it provides after-school learning programs for students from kindergarten through 12th grade. Meta Data also offers one-to-one education, examination question analysis, mistakes settlement, tutoring, culture programs, and other services. However, investors see very little value in AIU stock, sending shares down over 84% YTD.
Presently, shares trade hands at only 8 cents above a buck. However, if circumstances continue to worsen, AIU could be a literal penny stock in no time. Fundamentally, Meta Data is deeply distressed. On its balance sheet, the company’s Altman Z-Score sits over 57 points below parity. Frankly, that’s an unheard-of level of instability, suggesting that AIU is easily one of the stocks to sell.
Other factors to monitor include its three-year revenue growth on a per-share basis slipping into negative territory. The same can be said about its operating and net margins. Honestly, it’s probably best not to play hero and just let this one go.
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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.