The recent sell-off has made many investors pretty nervous about the near-term future of the stock market.
Although we have all loved the runup off the March lows, the decline’s memory is still with us. That gut-wrenching 34% rapid decline was painful – and more than a little scary. And after reaching an all-time high in early September, the Dow has been on a roller coaster. The index is down 6% since then, including a 500-point loss on Monday.
Now is an excellent time to look at your portfolio and clear out any deadwood that could turn into a disaster if the selling gets worse in the fourth quarter of 2020.
That’s why I’m giving you my top three stocks to sell right now.
I will combine two indicators, one technical and one fundamental, to help find those stocks we need to sell.
The Piotroski F-score is one of the best ways to measure a company’s financial health and prospects. The 9-point model evaluates financial statements. The higher the score, the better the business.
To find companies with poor prospects, we looked for companies with a score of 4 or less.
Then we add a simple moving average cross to confirm those companies with poor prospects under selling pressure. All that means is the stock’s share price just fell below its 50-day moving average. It’s a sign investors are cutting bait on the stock.
Here are the three stocks that match our criteria.
You don’t want these shares anywhere near your portfolio right now…
This Dating Site Is a Stock to Avoid
Match Group Inc. (NASDAQ: MTCH) is one of the leading online dating companies in the world. It owns Tinder, Match, Meetic, OkCupid, Hinge, Pairs, PlentyOfFish, and OurTime. Its newest app, Hinge, appears to be growing fairly quickly, but the rest of the business is lagging somewhat.
Dating via Tinder is a little more complicated than usual during a pandemic.
The dating app company has an F-score of just 3 right now.
The shares have also just crossed under the 50-day moving average, which is a huge red flag. If the selling continues, the nearest price support would be down around $90 a share and then the 200-day moving average near $88.
With shares trading for $106.73 right now, that’s nearly a 20% loss potential if markets hit any more turbulence.
This Is the Tech Stock to Sell Now
While tech stocks have thrived since the crash in March, not all of them are worth owning.
The pandemic has gutted ridesharing. Travel is down dramatically. Many bars and restaurants have been closed for a substantial period of time. Bars and restaurants that have opened again are operating at limited capacity.
Lyft Inc. (NASDAQ: LYFT) has been something of a dog since its IPO last year. The stock is about 60% below its IPO price.
Thanks to the pandemic and the massive revenue decline, the stock will probably continue being a dog for a long time.
If the referendum on California’s new law that would force Lyft and its competitors to treat drivers as employees passes, the company will either have to leave the state or suffer tremendous losses.
Lyft’s management thinks that the company may be profitable on earnings before interest, taxes, and amortization (EBITDA) basis in late 2023. Profitability on generally accepted accounting principles is not going to happen until 2024.
That’s assuming we see a vaccine of treatment that ends the pandemic, and nothing else bad happens.
Until then, Lyft just keeps bleeding cash.
The prospects of the beleaguered company are more than reflected in the bottom-scraping F-score of 2. Nothing has gone right for this company in 2020. It does not look like happy changes are in the forecast anytime soon, unfortunately.
Sellers are in charge of the is stock. Lyft shares are almost 20% below the 200-day moving average right now. The price just fell through the turned down 50-day moving average as well.
If we were seeing insider buying with the stock price almost 20% below the 200-day MA, we might be interested in Lyft as a bounce candidate. Unfortunately, insiders have been selling.
This further confirms the need for a bearish position on shares of Lyft.
But Lyft has nothing on our worst stock.
This is pure portfolio poison…
The Top Stock to Sell Right Away
Franklin Resources Inc. (NYSE: BEN) is one of the largest mutual fund companies in the world. The sad truth is that although Franklin is well managed and has good products, the mutual fund business is not very good these days. Low-cost exchange-traded funds and passive index strategies have made mutual funds much less enticing for investors.
The merger with Legg Mason is unlikely to change the outlook very much. Putting two companies that sell unwanted products together just makes for a larger company whose primary product is mutual funds.
The merger will add little in the way of earnings power to Franklin.
That unfortunate fact is reflected in the F score of just 3.
Sellers are in charge of this stock, with prices falling below the 50-day moving average and below a downward sloping 200-day MA. There is no reason that we can see to hang onto the stock right now.
Insiders have been selling shares over the summer. Insider selling in a stock with a P/E under 10 is unusual and confirms the stocks’ weakness and poor outlook.
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Source: Money Morning