For many investors, the ball can’t drop on 2018 fast enough. It’s been quite the roller coaster ride. Investors cheered the rally created by lower corporate taxes at the beginning of the year, only to watch their gains put in jeopardy by the summer swoon of the tech stocks and the overall market correction in October. Still, December brings to mind visions of a “Santa Claus” rally. Will this year deliver? History says yes, but some other indicators say maybe not.
Interest rates continue to inch up. Are they a big concern yet? No, but there seems to be no sign that the Federal Reserve will be pausing. The trade war and equally hostile rhetoric continues between the U.S. and China. Many still believe this will resolve itself quickly. Then again, they've been saying that for months. Oil is falling, which is great for consumers at the gas pump, but is it a sign that the economy is slowing? It may be too early to tell. And that's the real problem.
As 2018 comes to a close, there is a lot of uncertainty in the market. And since markets hate uncertainty, rallies can get choked off before they start. The S&P 500 is trading at a P/E ratio of 21.8, which is down from multiples over 25. The forecast is for the P/E ratio to continue falling. That’s bad news for some stocks, particularly those in the tech sector that have seemed overpriced. This makes them ideal candidates for you to sell as 2018 comes to an end. These stocks are not dogs by any means, but now may be a prudent time to take some profits and avoid further pain while the market finds a direction.
Quick Links
- Amazon
- Facebook
- Netflix
- General Electric
- Roku, Inc.
- Snap, Inc.
- Square, Inc.
- Starbucks Corporation
#1 - Amazon (NASDAQ:AMZN)
Amazon (NASDAQ: AMZN) - I know. It's ridiculous, right? How can Amazon be on a list of stocks to sell? The retailing giant has become virtually synonymous with online shopping. Just as people are told to “Google it” to search for something on the Internet, there is a “just go to Amazon” effect in the market. But Amazon is not just about shopping anymore. The company is all grown up now and is positioned as a leader in cloud computing and is poised to spread its reach into other industries as well. AMZN is no longer just a retail stock. This raises the question of value. Investors may be able to find better buys. First, take a look at their P/E ratio which currently is around an eye-popping (and eyebrow-raising) 76. Many investors have so far dismissed the high multiple citing the fact that the company continues to increase its cash on hand even as it spends more every year. But it's fair to wonder if you can find stocks that have higher growth potential that sell at a lower multiple. After all, what comes up must come down and while Amazon is forecasting a long-term growth rate of over 43%, at some point that growth is priced into the stock. It may already be.
About Amazon.com
Amazon.com, Inc engages in the retail sale of consumer products, advertising, and subscriptions service through online and physical stores in North America and internationally. The company operates through three segments: North America, International, and Amazon Web Services (AWS). It also manufactures and sells electronic devices, including Kindle, Fire tablets, Fire TVs, Echo, Ring, Blink, and eero; and develops and produces media content.
Read More - Current Price
- $224.92
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 42 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $243.00 (8.0% Upside)
#2 - Facebook (NASDAQ:META)
Facebook (NASDAQ: FB) - When you see a headline that reads “Facebook’s stock is deeply troubled – and the bottom is nowhere in sight”, you begin to see the problem that Facebook is having. The social media giant was just starting to put privacy concerns behind it, but those are now seeming like the tip of the iceberg. Facebook has internal strife. The co-founders of Instagram, Facebook’s photo-sharing site, resigned abruptly in September. This is on top of reports of internal disputes between CEO Mark Zuckerburg and Chief Operating Officer Sheryl Sandberg. But all of this can be chalked up to noise that happens from time to time with a growing company. A bigger problem is that Facebook is not delivering earnings reports that are wowing executives. Their last quarter saw them deliver 1.49 billion active daily users, slightly below the 1.5 billion analysts expected. And the company’s continued focus on data security is hitting the bottom line as operating profit dropped 8% in the quarter. Shares of Facebook are down 24% for the year, making it the worst performing among the stocks belonging to the FAANG club (Facebook, Amazon, Alphabet, Netflix, Google).
About Meta Platforms
Meta Platforms, Inc engages in the development of products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. It operates in two segments, Family of Apps and Reality Labs. The Family of Apps segment offers Facebook, which enables people to share, discuss, discover, and connect with interests; Instagram, a community for sharing photos, videos, and private messages, as well as feed, stories, reels, video, live, and shops; Messenger, a messaging application for people to connect with friends, family, communities, and businesses across platforms and devices through text, audio, and video calls; and WhatsApp, a messaging application that is used by people and businesses to communicate and transact privately.
Read More - Current Price
- $585.25
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 37 Buy Ratings, 4 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $638.00 (9.0% Upside)
#3 - Netflix (NASDAQ:NFLX)
Netflix (NASDAQ: NFLX) - There’s been talk for a little while about problems with the streaming content provider. The streaming video space has become quite crowded and the path for Netflix to break through the clutter is by producing original content. But that comes at a high price. So even as the company projects a growth rate which would seem to support a high P/E (currently around 97), it is spending money on content creation. In 2018 alone, that bill could reach $13 billion. Investors are taking notice as the company’s balance sheet has shown a nearly 70% increase in their long-term debt load. But that doesn’t tell the whole story. Looming on the horizon is competition from Disney which will threaten the company’s leadership position in the space as it most assuredly will pull its content from Netflix in favor of its new creation Disney+. If Netflix drops to number two in the streaming video space, it will be nearly impossible for investors to reward it at a high multiple and a rising debt load. This may be the perfect time to follow the adage to sell high.
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
- $909.05
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 23 Buy Ratings, 10 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $807.70 (11.1% Downside)
#4 - General Electric (NYSE:GE)
General Electric (NYSE: GE) - General Electric remains a stock that should have a sticker “let the buyer beware”. There are glimmers of hope. They have a new CEO (but that after their last CEO served a term of less than one year). They have an attractive P/E ratio of around 10. They continue to shed business units that do not contribute to their focus on a core industrial manufacturing base. And some analysts are pointing towards positive earnings estimates. But GE has not been able to get out of its own way, and that is making it difficult, if not impossible, for investors to take any talk of a turnaround seriously. One of the latest disappointments was a cut in their quarterly dividend to one cent per share. That is never news that inspires confidence, and it comes on the heels of a disappointing earnings report. Forecasted 2018 earnings of 95 cents per share have now been downgraded to 70 cents per share. Key metrics like revenue, net income and earnings per share (EPS) are all negative on a year-over-year basis. The stock itself is trading at around $7.40 per share. GE stock may be a buy, but it has to overcome a lot of “ifs” right now.
About General Electric
General Electric Company, doing business as GE Aerospace, designs and produces commercial and defense aircraft engines, integrated engine components, electric power, and mechanical aircraft systems. It also offers aftermarket services to support its products. The company operates in the United States, Europe, China, Asia, the Americas, the Middle East, and Africa.
Read More - Current Price
- $168.37
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $201.93 (19.9% Upside)
#5 - Roku, Inc. (NASDAQ:ROKU)
Roku, Inc. (NASDAQ: ROKU) - The question investors have to ask with regard to buying Roku stock is what kind of company do you believe it will be for the long haul? That’s because Roku is almost sure to “kill it” this holiday season. Its flagship Roku box is expected to be one of the hot holiday gifts this year and streaming video remains an unsaturated market with industry analysts suggesting that the market may only be 25% of the way towards where it will eventually be. With an account base of 25 million subscribers, there is growth potential because Roku devices allow consumers to use multiple streaming services without an undue reliance on one. That’s the good news. The bad news is that Roku is currently overvalued. It has seen its stock trading at almost half of early October levels. But the real question for investors is when will Roku actually turn an annual profit? The company is forecasting 2020. If that happens, their forward valuation will rise to a level above 300. Although that may come down some as profits grow, it would be hard to sustain that valuation unless the company can significantly raise its long-term growth forecast above the current 20% projection.
About Roku
Roku, Inc, together with its subsidiaries, operates a TV streaming platform in the United states and internationally. The company operates in two segments, Platform and Devices. Its streaming platform allows users to find and access TV shows, movies, news, sports, and others. The Platform segment offers digital advertising, including direct and programmatic video advertising, media and entertainment promotional spending, and related services; and streaming services distribution, such as subscription and transaction revenue shares, and sale of premium subscriptions and branded app buttons on remote controls.
Read More - Current Price
- $80.59
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 9 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $83.81 (4.0% Upside)
#6 - Snap, Inc. (NYSE:SNAP)
Snap, Inc. (NYSE: SNAP) - Speaking of stocks that have a profit problem, there’s Snap. Snap has seen erosion in its core base of teenage users who are becoming more inclined to use Instagram while at the same time are cooling on its new offerings such as their spectacles and short programs. When you can’t get the teen eyeballs, and subsequent dollars, it’s not a good sign. Investors have noticed. They’ve also noticed that while Snap has tended to beat earnings estimates it has been because their losses have been “less bad” than expected. That’s not a good formula for consumer confidence, particularly when analysts are not projecting profitability until at least 2022. Snap recently announced their intent to issue an initial public offering (IPO) that is currently an investigation by the U.S. government which may make it increasingly difficult for the company to raise additional money. The stock is currently trading just above $6 share, putting it dangerously close to penny stock territory. Now would seem to be a time to sell, not speculate.
About Snap
Snap Inc operates as a technology company in North America, Europe, and internationally. The company offers Snapchat, a visual messaging application with various tabs, such as camera, visual messaging, snap map, stories, and spotlight that enable people to communicate visually through short videos and images.
Read More - Current Price
- $11.40
- Consensus Rating
- Hold
- Ratings Breakdown
- 9 Buy Ratings, 22 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $37.10 (225.4% Upside)
#7 - Square, Inc. (NYSE:SQ)
Square, Inc. (NYSE: SQ) - Like many stocks on this list, Square faces a question of valuation. Square allows consumers to accept credit card transactions from their smartphones. This has been a game-changing application for many small businesses that were being left behind in a society that is becoming increasingly dominated by electronic transactions rather than cash. In that sense, plus with its ability to fight off other competitors and expand its product line to fit the needs of slightly larger businesses, Square is to this decade what PayPal and Intuit have been to previous decades. But does that justify a valuation of 142 times earnings after a decline in stock price of nearly 35% since September? The holiday season should be kind to Square as more transactions create more opportunities for their products to be showcased. However, even assuming an aggressive growth rate of over 50% over the next five years, it will be hard for Square to convince investors it is a good value. Square is a good stock, it will just seem better when it comes back to earth a little bit
About Block
Square, Inc provides payment and point-of-sale solutions in the United States and internationally. The company's commerce ecosystem includes point-of-sale software and hardware that enables sellers to turn mobile and computing devices into payment and point-of-sale solutions. It offers hardware products, including Magstripe reader, which enables swiped transactions of magnetic stripe cards; Contactless and chip reader that accepts EMV® chip cards and Near Field Communication payments; Chip card reader, which accepts EMV® chip cards and enables swiped transactions of magnetic stripe cards; Square Stand, which enables an iPad to be used as a payment terminal or full point of sale solution; and Square Register that combines its hardware, point-of-sale software, and payments technology, as well as managed payments solutions.
Read More - Current Price
- $89.65
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 26 Buy Ratings, 5 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $96.33 (7.5% Upside)
#8 - Starbucks Corporation (NASDAQ:SBUX)
Starbucks Corporation (NASDAQ: SBUX) - If you’re sensing a counterintuitive theme going on, you’re right. Starbucks is another company that should enjoy a great holiday season. Its seasonal drinks are becoming synonymous with the Holidays and as every consumer knows there’s always a Starbucks near you at least in the U.S. and Canada. But that’s where the question has to be asked, where’s the growth going to come from? Certainly not from North America. The company has long made China the goal for its long-term growth. Starbucks is going to need new stores in China to fuel that growth. Those plans are on hold while China and the U.S go back on forth in an ongoing trade war. What is different about Starbucks as opposed to other companies on this list is their valuation seems to be right. Trading at just about 25 times earnings, it is just above S&P 500 average and its profit growth for 2018 will be in the high single digits. And while other stocks have taken a beating since October, SBUX has jumped 20%. This may give some investors a buy signal, but now may be the perfect time to kick back, buy a latte and sit out the season.
About Starbucks
Starbucks Corporation, together with its subsidiaries, operates as a roaster, marketer, and retailer of coffee worldwide. The company operates through three segments: North America, International, and Channel Development. Its stores offer coffee and tea beverages, roasted whole beans and ground coffees, single serve products, and ready-to-drink beverages; and various food products, such as pastries, breakfast sandwiches, and lunch items.
Read More - Current Price
- $87.97
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 18 Buy Ratings, 8 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $103.77 (18.0% Upside)
2018 has been a rocky year for investors. While some stocks will certainly be closing out on a high note, there are some, most notably in the tech sector, that have warning flags waving for 2019. So while it's great to dream about sweet profits from a Santa Claus rally, the truth is that there are some stocks that are set up to deliver investors a post-holiday hangover.
It’s true some of these stocks are some of the darlings of the tech sector. They can’t go down, can they? They can. And with bear market winds starting to pick up strength, some of these companies have valuations that don’t look so jolly.
Now is the time to protect your portfolio by selling some of the stocks that have made gains for this year. Lock in those profits and have some cash on the sideline until the picture becomes clearer in 2019. And, if you want more help in staying on top of things as the busy holiday season approaches, be sure to look into MarketBeat All Access which gives you real-time analyst ratings, earnings, dividends, and a host of other investment research tools.
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