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All Contents © 2019The Kiplinger Washington Editors
By Charles Sizemore
| November 3, 2016
Breaking up is hard to do, but sometimes, you just have to move on. It’s not your fault you fell in love with bad stocks … but what turned you on for a hot romantic fling is not the stuff of a long-term investment relationship.
There are stocks to marry, and there are stocks to just date.
And once the romance is over, there are stocks to sell.
Today, I’m going to recommend some of those stocks to sell. All are sexy … or at least they were at one time. But they are absolutely not stocks you want to own for the long term. If you stick with them, they will break your heart … or simply give you a heart attack.
All joking aside, investors tend to get emotional about their stocks. But owning bad stocks really is a lot like being in a bad relationship. It will distract you and force you to make bad decisions, and can obviously cost you a lot of money.
So with no more ado, here are eight stocks to sell — immediately!
Andy Melton via Flickr
Twitter Inc. (TWTR) has been a major disappointment since going public in 2013. Three years later, it’s still below its IPO price … and priced at just one-third of its all-time high.
Sure, it’s up by more than 35% from its lows earlier this year. But that’s thanks to a lot of M&A chatter — most of which has gone kersplat.
Walt Disney Co. (DIS), Alphabet Inc. (GOOG, GOOGL), Apple Inc. (AAPL) and Salesforce.com, Inc. (CRM) were all listed as potential suitors for a Twitter buyout bid, with most of the hubbub starting in late September.
However, all but Salesforce have dropped off as of this writing, and TWTR is hemorrhaging most of those gains.
The fact remains that Twitter has some very significant flaws. Despite its popularity among media personalities and celebrities — including both presidential candidates this year — Twitter still has yet to really catch on among ordinary people. The company has been left in the dirt by rival Facebook Inc. (FB), which continues to grow its user base despite starting at a much higher level
And it’s hard to determine who Twitter’s real users are. I estimate that somewhere between a quarter and a third of my “followers” are bots or marketing spammers. That’s a real problem for TWTR’s profit model, which assumes real human eyeballs looking at real advertising content.
Who knows? Maybe Twitter’s management can figure out its profit model. But given that Twitter was in a rush to get bids in before its third-quarter earnings release … well, let’s just say I wouldn’t bet on TWTR.
Kick this loser to the curb.
Mike Mozart via Flickr
Few industries are hated as badly as fast food, and that puts Yum! Brands, Inc. (YUM) right in the crosshairs.
Yum! is the parent of KFC, Taco Bell and Pizza Hut, among others. And I … ahem … may frequent the Taco Bell drive-thru window a little more often than my doctor would recommend. But it seems there aren’t a lot of cars in the line these days, and fast food is no longer a growth business. And between health activists and the “Fight for $15” labor activists, fast food is under attack. Slowing demand, growing health-consciousness and rising labor expenses is not a recipe for success.
More than 60% of YUM’s revenues come from emerging markets, and most of that is from China. So you might think that the news isn’t all bad. But believe it or not, it actually gets worse.
The tendency toward healthier eating is not simply an American phenomenon. As incomes rise, Chinese diners are opting for healthier choices as well, and sales growth has been hard to come by for the last four years — part of why Yum is spinning off its China business at the end of October.
Adding insult to injury, Yum! isn’t cheap, trading at 25 times earnings.
I don’t see Yum! going out of business any time soon, but I also don’t see it turning things around. YUM’s latest earnings only serve to reinforce that thought.
This is a stock best forgotten about.
Norsk Elbilforening via Flickr
If I could choose anyone in the world to have a beer with, Elon Musk would be a good candidate. I have a feeling that, 100 years from now, my great-great-grandkids will be reading about him in school. The man claims that he wants to be buried on Mars when he dies, and he’s just crazy enough to make that happen.
But while I love Elon Musk, I can’t saw the same about the stock of Tesla Motors Inc. (TSLA).
It’s not that I don’t believe in the product. I actually do. I think it’s highly likely that electric cars eventually replace traditional gasoline-powered vehicles. But I question whether Tesla will be around long enough to actually reap the rewards. Moving from a niche operator to a large-volume producer is no easy task, but Tesla shares have already essentially priced in a flawless transition. At current prices, Tesla trades for nearly 7 times annual sales. As a point of reference, General Motors Company (GM) — which, by the way, is expected to get its Chevy Bolt EV out ahead of Tesla’s Model 3 launch — trades for just 0.32 times sales.
I should also add that Tesla isn’t profitable, and really never has been. Its buyout of SolarCity Corp. (SCTY) likely won’t help things, and the company has said it will need to raise more capital (through debt or more shares) to finance its Model 3 operations and Gigafactory buildout.
Again, I love the product, and I wish Tesla Motors the best of luck. But at current prices, TSLA is one of those bad stocks to sell.
While I hate to bet against Warren Buffett … well, I’m going to.
The Oracle of Omaha is arguably the greatest investor living today, and perhaps even the greatest of all time. But Mr. Buffett’s time horizon and motivations are often very different than ours. And frankly, even a genius like Buffett swings and misses sometimes.
This brings me to global soft drink leader The Coca-Cola Co. (KO).
Coca-Cola is a legendary company with what is arguably the most valuable brand name in the world. Coke products are available is essentially every country in the world, minus perhaps North Korea. And I’m betting that even in North Korea, Coke can be had … for the right price.
Of course, there’s a big problem here. While Coke might be available in every country in the world, no one seems to want to drink it anymore. Consumption of sugary sodas fell to a 30-year low in the United States last year, and nothing points to that improving anytime soon.
Meanwhile, Coca-Cola Company isn’t cheap, trading for more than 24 times earnings.
Another Buffett bomb is International Business Machines Corp. (IBM). IBM was one of Buffett’s largest stock buys in history, and again, I hate betting against Warren Buffett because history has proven that to be a phenomenally bad idea. But in the case of IBM, I really don’t understand what on earth the Oracle is thinking.
IBM has seen falling revenues for 17 consecutive quarters … and counting.
That’s so awful it’s actually hard to fathom. IBM is in its fifth year of shrinking revenues. Generally, after a bad year, you can’t help but post year-over-year growth in the following year because your comparable sales are so bad it’s actually hard to do worse.
Well, what can I say? IBM seems to find a way,
The root problem is that the industry has shifted, and IBM’s business model is now obsolete. Enterprise customers are moving their operations to cloud-based solutions, such as Amazon.com, Inc.’s Amazon Web Services. IBM is pushing into the cloud as well, but here they have no real competitive advantage, and Amazon was the first mover.
I just don’t see much of a light at the end of the tunnel here. If you own IBM, it’s time to cut it loose.
Speaking of Amazon, I’m going to recommend that you dump this stock as well, though it has nothing to do with performance. Other than perhaps Apple Inc. (AAPL), Amazon (AMZN) may be the single greatest growth story of the past 20 years. Amazon founder Jeff Bezos practically invented internet commerce, and he practically invented cloud services via Amazon Web Services.
As a company, Amazon is simultaneously fighting Wal-Mart Stores, Inc. (WMT) and Target Corporation (TGT) in retail and IBM and Microsoft Corporation (MSFT) in business services … and it’s winning this two-front war. And Amazon may be about to open a third front against shipping giants FedEx Corporation (FDX) and United Parcel Service, Inc. (UPS).
But no matter how much I love and respect Amazon, I can’t see myself paying 200 times earnings for any stock … even a gem of a company like this one. If Amazon ever has a significant correction, it’s definitely a stock I’d like to own. But at current prices, Amazon is priced to disappoint.
At the end of the day, all of Amazon’s respective businesses are cutthroat competitive, and its rivals aren’t simply standing by to watch AMZN conquer the world. This means lower margins … and likely a lot of disappointed investors.
I’ll be straight with you: I just flat-out do not understand the strength of tobacco stocks like Altria Group Inc. (MO) in recent years. Tobacco usage all around the world is in slow, inexorable decline. Young people today are more likely to have tried illegal drugs than to have smoked a cigarette. And it’s hard to see that changing.
Not surprisingly, tobacco stocks have spent most of the past several decades trading a discount to the broader market. Frankly, they should. It only makes sense. Demand for their products falls with every passing year!
Yet investors have been driven mad in their hunt for yield. which has caused them to embrace anything paying a dividend … even tobacco stocks. And today, the prices no longer make sense.
Altria yields just 3.9%, which puts it below the yield of many real estate investment trusts (REITs), utility stocks and other income plays. And remember, Altria is a company in constant decline. These other income generators are not.
At some price, even a tobacco stock is worth owning. But I can’t make that case for MO shares today. Investors are not being adequately compensated at today’s prices, so Altria is a stock best kicked to the curb.
My last recommend isn’t exactly a stock; it’s a bond exchange-traded fund. But frankly, at current prices, I consider it about as risky as most of the stocks on this list.
If you own the iShares Barclays 20+ Yr Treas. Bond (TLT), dump it.
Adjusted for inflation, you’re likely to lose money in the years ahead. The ETF yields a paltry 2.2%, which is just barely above the Fed’s targeted inflation rate. But even disregarding inflation risk, there is still a decent chance you’ll hit a few bumps in the road.
TLT holds a portfolio of U.S. government bonds with maturities of 20 years or more. There is, at least in theory, no risk in owning a U.S. government bond that you intend to hold to maturity, as you are guaranteed to receive the face value of the bond by the full faith and credit of Uncle Sam. But ETFs have no maturity date; they are designed to be perpetual. So, should yields rise, there is the real chance you’ll see capital losses that you realistically may never see back.
This article is from Charles Sizemore of InvestorPlace. As of this writing, As of this writing, he was long AAPL and GM.