We’re officially in the holiday season, which means it’s time to get our portfolios set for the new year. And for many investors, 2021 can’t get here fast enough. Don’t get me wrong. Overall, being invested in stocks has been a wise move. But it hasn’t been without its ups and downs. For investors to profit in this market, they have had to have conviction.
But having conviction also means knowing when it’s time to sell. One of the hardest things to do in life, as well as in investing, is to let go of an idea that simply isn’t working. There are a lot of story stocks out there. And while those stories may turn out to be more than fairy tales, in the long run, it doesn’t mean you have to pay tomorrow’s prices today.
Or, it could simply be a good time to take some profits. A new administration in Washington D.C. will bring a different, and most likely less favorable, tax policy regarding capital gains. It may be advantageous to take some of your gains now.
Whatever your motivation may be, we’ve put together a list of seven stocks that you should consider selling before the new year.
Quick Links
- Netflix
- Peloton
- GrubHub
- Nikola
- GoPro
- United Airlines
- AVIS Budget Group
#1 - Netflix (NASDAQ:NFLX)
Let’s start out with a pick that may sound contrarian, but it’s really not. Binge-watching isn’t really my jam. There are so many other things to do, let alone watch. However, I’m not the target audience for Netflix (NASDAQ:NFLX). Nonetheless, I have a subscription, and my account gets charged every month like clockwork.
Ah, recurring revenue. The golden egg is being laid by one of the market’s golden geese. Recurring revenue is important for Netflix in particular because the company has to pay to create its original content. Prior to the pandemic, investors saw that as a headwind for the stock. But now Netflix has received a second wind.
All that being said, NFLX stock is down nearly 13% from its year-to-date highs around $550. In fact, at three separate times this year, that stock price has served as a point of resistance. In each case, the stock found support around the $460 level. It appears Netflix is heading in this direction. But I have another concern.
In January, Netflix loses The Office. Can one program make a difference? According to an InMyArea Research survey conducted earlier in 2020, more than 18 million U.S. subscribers watch the show. And 53% of those viewers are in the critical 18-44 age demographic. Of those surveyed, 10% said they would cancel their subscription once The Office closed its doors on Netflix. That would be a hit of about $935 million. That may not seem significant for a company that is on pace to generate nearly $25 billion in revenue in FY2020. But the survey was conducted largely prior to the pandemic. As consumers have had a chance to test drive additional options, they may decide to leave as well.
All I’m saying is there are both technical and fundamental reasons for taking some profits on Netflix and waiting on the next leg up.
About Netflix
Netflix, Inc provides entertainment services. It offers TV series, documentaries, feature films, and games across various genres and languages. The company also provides members the ability to receive streaming content through a host of internet-connected devices, including TVs, digital video players, TV set-top boxes, and mobile devices.
Read More - Current Price
- $883.85
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 24 Buy Ratings, 9 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $758.76 (14.2% Downside)
#2 - Peloton (NASDAQ:PTON)
The next stock on the list has been another pandemic winner. Peloton (NASDAQ:PTON) went from being the butt of jokes to having the last laugh. Millions of Americans moved their fitness routines into their homes, and Peloton bikes became a beneficiary.
Of course, that brings up the recurring revenue theme again. Because once consumers have laid out the money for one of the company’s bikes, they’re likely to use it.
Like Netflix, shares of PTON stock are down approximately 21% since their year-to-date high in October. One of the “sell the news” items weighing on the stock are reports that consumers are canceling orders due to long shipping lead times.
The shipping problem will likely ease as a Covid-19 vaccine becomes more widely available. However, that is also likely to bring fitness enthusiasts back to the gym. Plus, Peloton doesn’t have a moat, and lower-priced (although perhaps not with the same quality) competitors are proliferating the home gym market.
Either way, it seems unlikely that Peloton will get the same holiday boost that it received last year. And that means if you haven’t already sold some PTON stock, it may be time to do so.
About Peloton Interactive
Peloton Interactive, Inc operates interactive fitness platform in North America and internationally. The company offers connected fitness products with touchscreen that streams live and on-demand classes under the Peloton Bike, Peloton Bike+, Peloton Tread, Peloton Tread+, Peloton Guide, and Peloton Row names.
Read More - Current Price
- $8.36
- Consensus Rating
- Hold
- Ratings Breakdown
- 3 Buy Ratings, 15 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $6.75 (19.3% Downside)
#3 - GrubHub (NYSE:GRUB)
You might be noting a theme here. And you’ll either think I’m insane, or maybe I’m onto something. GrubHub (NYSE:GRUB) has been a pandemic winner because food delivery became an essential service.
But here again, we find a stock that’s down 18% in the last month. In fairness, GRUB stock is approaching a price that provided support back in September. And with mitigation measures being heightened in many states, the stock may be poised for a Santa Claus rally.
But there are some fundamental problems that investors shouldn’t ignore. Yes, GrubHub has picked up exciting partnerships with Dunkin Brands (NASDAQ:DNKN), Pizza Hut, and Taco Bell - both of which are affiliated with Yum! Brands (NYSE:YUM). However, the company is likely to increase its marketing spend, which could squeeze already tight margins. Plus, the market for food delivery is highly competitive. This is a market going through a wave of consolidation, which always makes valuing stocks tricky.
GrubHub did receive a catalyst when the California ballot initiative forced companies like DoorDash to classify its drivers as employees failed. But that hasn’t had much effect on the stock, which suggests investors were already factoring that outcome into the stock’s price.
About Just Eat Takeaway.com
Just Eat Takeaway.com N.V. operates an online food delivery marketplace. The company focuses on connecting consumers and restaurants through its platforms. It serves in the United Kingdom, Germany, Canada, the Netherlands, Australia, Austria, Belgium, Bulgaria, Denmark, France, Ireland, Israel, Italy, Luxembourg, New Zealand, Norway, Poland, Portugal, Romania, Spain, and Switzerland, as well as through partnerships in Colombia and Brazil.
Read More - Current Price
- $61.05
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#4 - Nikola (NASDAQ:NKLA)
Electric vehicle (EV) stocks have been red hot in 2020. And there’s a good reason for that. With the possible exception of 5G, there’s no market in which the United States is trying to achieve dominance in the EV market. The sector took steps forward, even with the benign neglect of the Trump administration. Now it has a champion on Pennsylvania Avenue.
However, not all EV stocks get to go to the moon. And for me, Nikola (NASDAQ:NKLA) fits that category. I’m generally not a fan of companies that have a whiff of accounting shenanigans. And Nikola has had that. But there’s a more fundamental reason to not invest in the stock. The company’s fortunes depend on a $2 billion partnership with General Motors (NYSE:GM).
But in a recent interview on Jim Cramer’s Mad Money, Nikola would not confirm that a deal is forthcoming. And the company would not squelch concerns that the company’s founder Trevor Milton will sell all or part of his 91.6 million shares when a lock-up period ends on December 1.
About Nikola
Nikola Corporation operates as a technology innovator and integrator that develops energy and transportation solutions in the United States and internationally. The company operates in truck and energy units. It commercializes battery electric vehicles (BEV) and hydrogen fuel cell electric vehicles (FCEV) to the trucking sector.
Read More - Current Price
- $1.91
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $12.00 (528.3% Upside)
#5 - GoPro (NASDAQ:GPRO)
What do you get when you cross a product that has failed to capture market share with a tantalizing stock price? You get GoPro (NASDAQ:GPRO). This company has failed to gain traction with its core product offering and has recently taken to the subscriber model to capture recurring revenue.
The largest problem for GoPro is that smartphone technology has become so good that many consumers are using their mobile devices to take live-action video leaving little room for GoPro’s offerings.
I suppose professionals may quibble, but there are obviously not enough of those to drive revenue. Case in point, GoPro recently initiated a debt offering that would be an additional $100 million to the company’s $157 million in long-term debt. Coming off what was largely seen as a solid earnings report in September, this is not going over well with investors.
A recent 15% drop in the stock price still probably leaves the stock overvalued. The smart play is not to chase GPRO stock until there is a more compelling story concerning a return to sustained profitability.
About GoPro
GoPro, Inc develops and sells cameras, mountable and wearable accessories, and subscription services and software in the Americas, Europe, the Middle East, Africa, the Asia and Pacific region, and internationally. The company provides cloud connected HERO12 Black, HERO11 Black, HERO11 Black Mini, HERO10 Black, HERO10 Black Bones, and HERO9 Black waterproof cameras; MAX, a 360-degree waterproof camera; Premium and Premium+ subscription services, which include full access to the Quik app, cloud storage supporting source video and photo quality, camera replacement, and damage protection; Quik subscription that offers access to editing tools, which allows users to edit photos, videos, and create cinematic stories; and Quik desktop and mobile apps that enable users to get their favorite photos and videos with footage from any phone or camera.
Read More - Current Price
- $1.13
- Consensus Rating
- Reduce
- Ratings Breakdown
- 0 Buy Ratings, 1 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $2.25 (99.1% Upside)
#6 - United Airlines (NASDAQ:UAL)
Airline stocks are drawing speculative buyers' attention with the “it’s Monday, so there must be another vaccine ready” market we’ve had in November. I’ll leave the coincidental timing of the vaccine announcements to people with a higher pay grade.
However, there’s no doubt that airlines must be breathing a sigh of relief. Through no fault of its own, this sector was devastated by the decline in air traffic. And while the sector has been coming back in fits and starts, the industry needs a vaccine badly.
The good news is when it does, air traffic should return, at least domestically. And that’s where I advise pumping the brakes just a bit on United Airlines (NASDAQ:UAL). Among the leading airline carriers, United has the most exposure to international flights. And that will probably be the last market segment to come back.
UAL stock has climbed 28% in the last month, and this seems like a case of too far too fast. It would seem like a good idea to wait on a better entry point.
About United Airlines
United Airlines Holdings, Inc, through its subsidiaries, provides air transportation services in North America, Asia, Europe, Africa, the Pacific, the Middle East, and Latin America. The company transports people and cargo through its mainline and regional fleets. It also offers catering, ground handling, flight academy, and maintenance services for third parties.
Read More - Current Price
- $94.63
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $88.28 (6.7% Downside)
#7 - AVIS Budget Group (NASDAQ:CAR)
Another travel stock that has recently cracked its way into positive territory for 2020 is Avis Budget Group (NASDAQ:CAR). Once again, at the surface level, this seems like a smart play. After all, air traffic and rental cars go hand-in-hand. But it’s important not to get carried away with a sector that faces an existential threat.
Thus far, Avis has done a good job of cost-cutting to fend off a bankruptcy situation. But if the business doesn’t improve soon, investors may get impatient with accounting maneuvers being a substitute for actual revenue.
However, while Avis is not Hertz (NYSE: HTZ), the rental car industry faces a challenge from ride-hailing services. And it’s a battle that they were losing before the pandemic. The flight of urban commuters out of the cities and the possible shift to work-from-home for millions of Americans may change business travel's fundamental nature.
Simply put, ask yourself this question. Is there enough activity in the rental car sector to justify an over 100% increase in CAR stock in the last six months?
About Avis Budget Group
Avis Budget Group, Inc, together with its subsidiaries, provides car and truck rentals, car sharing, and ancillary products and services to businesses and consumers in the Americas, Europe, the Middle East and Africa, Asia, and Australasia. It operates the Avis brand, that offers vehicle rental and other mobility solutions to the premium commercial and leisure segments of the travel industry; and the Zipcar brand, a car sharing network, as well as the Budget brand, a supplier of vehicle rental and other mobility solutions focused primarily on more value-conscious customers comprising Budget car rental, and Budget Truck, a local, and one-way truck and cargo van rental businesses with a fleet of approximately 19,000 vehicles, which are rented through a network of dealer-operated and company-operated locations that serve the light commercial and consumer sectors in the continental United States.
Read More - Current Price
- $99.06
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 4 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $133.13 (34.4% Upside)
The emergence of several Covid-19 vaccines is creating one of the most important market catalysts, hope. And investors who are fueled by hope can outlast the harshest of bear forecasts. But now is a time when it’s important not to get caught up in irrational exuberance.
Overall, the market appears to be a little ahead of the actual economy. Some stocks are due to pull back. And whether you believe in technical analysis or not, some of the charts send the same message.
That means that it’s not unlikely that many stocks that got overheated in 2020 may come down to earth in 2021. And with many attractive stocks to choose from, it’s best to aim for quality stocks as you position yourself into the new year.
Many of the stocks in this presentation may have a bullish long-term story. But as the economy begins to reshape itself after one of the most disruptive years in our lifetimes, it’s important to make sure your portfolio is positioned in the right sectors.
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