It’s always best to remove weak stocks from your portfolio as soon as possible. That is easier said than done in most cases. Anyone who has invested knows timing the market is a near impossibility. So identifying stocks to sell at the optimal time isn’t exactly a simple matter.
Further, stocks can be both popular and weak. When the market likes a stock with real problems, a Catch-22 emerges: Investors can choose to hold them and hope prices run higher despite identifiable problems, or they can sell on the threat those issues pose. That’s never an easy choice.
That’s the “art” of portfolio management. While the science of constructing a portfolio is quantifiable, the intuition aspect of portfolio management remains elusive.
Fortunately, the popular stocks listed below are looking like sells, as the pros mostly agree they aren’t strong. In other words, they probably don’t belong in your portfolio.
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That said, let’s get into the reasons to consider pulling these stocks to sell out of your portfolio:
- Zillow (NASDAQ:Z)
- Clover Health (NASDAQ:CLOV)
- Peloton (NASDAQ:PTON)
- AMC (NYSE:AMC)
- Ocugen (NASDAQ:OCGN)
- QuantumScape (NYSE:QS)
- SoFI Technologies (NASDAQ:SOFI)
Stocks to Sell: Zillow (Z)
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The primary reason to sell Z stock relates to its life cycle. Zillow is a maturing company that competes primarily in real estate listings and lead generation. That business isn’t actually a primary revenue driver. However, it is profitable.
Here’s the problem: Zillow was well aware of that issue when it started its algorithmic home-flipping business. Management wanted to find new sources of growth.
However, Zillow announced in November that it would shut down its house-flipping segment due to underperformance. Management noted the algorithms were incapable of predicting swings in house prices. Ultimately, the business lost $881 million in 2021. That’s not great at all, and it raises serious questions about algorithms and large-scale business decisions.
Zillow had a strong quarter while it wound down its iBuyer business. But that leaves Zillow back where it started, in a sense. It is projecting strong growth from its legacy business moving forward, but that may have been a fluke this quarter. After all, it got into iBuying because its core operations left it uninteresting, if profitable.
Interest rates are going to rise, and it won’t be the same market in 2022 that it was in 2021. That means Z stock should cool.
Clover Health (CLOV)
The pros certainly believe you should sell Clover Health if it’s in your portfolio. The Wall Street analysts who cover it mostly rate it a “hold” or a “sell.” And only one of those analysts rates it a “buy.”
Clover Health is the product of a merger with a special purpose acquisition company (SPAC). It was one of several blank check companies from the so-called SPAC King, Chamath Palihapitiya. It was supposed to be a great company, and CLOV a great stock.
The reasons to sell CLOV stock are fairly clear. Fundamentally, it remains unappealing. In the third quarter, the company posted a net loss of $34.5 million. That was in stark contrast to the $12.8 million net gain it posted a year prior.
The problem is that Clover Health isn’t doing well in the Medicare business. Its Medicare Advantage Medical Care Ratio is 102.5%. That means that for every $100 million Clover Health collects in premiums, it pays out $102.5 million in claims.
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That’s part of the reason Clover Health is performing so poorly. The company offered $300 million in stock to bolster its shaky business after that news was announced. All in all, it points to a company to avoid.
Stocks to Sell: Peloton (PTON)
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If you knew nothing about Peloton and its business, you could easily understand something’s up based on the shift in ratings over the past few months. Three months ago, it had 15 buy ratings and 12 hold ratings. Today it has 13 buys and 13 holds. So, even if you didn’t know it sells at-home exercise equipment, that shift would signal trouble.
Peloton is a pandemic stock. It became wildly popular throughout 2020. Its success tracks pretty well with the pandemic’s rise and fall.
I don’t see much good news moving forward. Peloton was expected to lose 92 cents per share but instead posted a loss of $1.39 in earnings per share (EPS). Revenues didn’t grow as quickly as expected either.
The other news is that despite all of the speculation, a potential buyout looks increasingly unlikely to materialize. Peloton stock prices had risen as rumors of a buyout by Amazon (NASDAQ:AMZN) or Nike (NYSE:NKE) gained momentum. However, recently appointed CEO Barry McCarthy put a damper on those ideas, stating:
“If I thought it was likely that the business was going to be acquired in the foreseeable future, I can’t imagine it would be a rational act to move across the country.”
Source: QualityHD / Shutterstock.com
It might be tempting to believe AMC has begun to stage the turnaround meme stock investors have long anticipated. After all, AMC recently released preliminary Q4 results that suggested revenue would beat expectations.
Q4 revenues are now expected to reach $1.17 billion after earlier figures pointed to $1.09 billion in revenues. That was enough to send AMC stock upward.
That occurred even as losses looked to be worsening. The company provided a wide range for its upcoming losses between $114.8 million to $194.8 million. Analysts expect the movie theater chain to post $119.4 million in losses in the quarter.
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Yes, AMC looks to have passed the worst of the pandemic. It lost much less money in the first three quarters of 2021 than it did in 2020. But now, it looks to be returning to what it was prior to the pandemic: A large company in a business that isn’t what it once was, and likely won’t be anytime soon — if ever.
Stocks to Sell: Ocugen (OCGN)
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Ocugen still lacks Food and Drug Administration (FDA) approval for its Covaxin vaccine. That’s the primary reason investors should consider removing it from their portfolios.
Remember, Ocugen acquired the rights to market Covaxin in the U.S. from Bharat Biotech early in the pandemic. Those rights later expanded to include Canada. However, there are now multiple vaccines on the market, and Ocugen has yet to receive FDA approval for Covaxin.
Ocugen is signaling it might be moving away from such hopes with its recent manufacturing plans. In late January, it signed a letter of intent to acquire a vaccine manufacturing hub in Ontario.
It was the wording of the press release that was quite telling. The deal was stated to bring new capabilities to Ocugen’s portfolio in Canada and the U.S. That implies Covid-19 may not be the future focus. Yet, the company also stated “[Covaxin], if approved, [would] be the first product manufactured in new upgraded facility.”
Immediately afterward, the press release noted the “New facility includes potential for manufacturing for breakthrough gene therapies and serve as R&D hub.” Ocugen is saying it’ll manufacture Covaxin if possible, but it’s also looking at other manufacturing possibilities. In short, it has more hope — but hope that remains unsubstantiated.
Source: rafapress / Shutterstock
I’ve argued that QuantumScape makes sense as a long-term, speculative bet on several occasions. The solid state battery company won’t commercialize a battery until 2025. That means investors will be waiting for a long time before they know the fate of QS stock.
It is certainly possible another solid state battery manufacturer will pull ahead of QuantumScape before it commercializes a product. But at the same time, investors should give the firm credit where due: It did achieve all of its 2021 goals, and it did so ahead of schedule.
So, I still like QS stock for exactly those reasons. It could be a massive winner in the portfolios of investors with a longer-term perspective.
But my opinion is starkly different to that of Wall Street. Of the six analysts with coverage, five rate it a hold and only one gives it a buy rating. They believe it doesn’t deserve a spot in your portfolio.
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You could make the argument that tech stocks aren’t going to have an easy 2022. Federal Reserve rate hikes are a near certainty as inflation rates rage. But I think it’s really about the time horizon required at this point. It’s too risky to have to wait for three years for anything major to materialize.
Stocks to Sell: SoFi Technologies (SOFI)
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SOFI stock continues its overall move downward. That said, not all pros agree that you should punt it from your portfolio. It has actually moved up over the past few months, according to their ratings. It now has many more buy ratings than it did three months ago.
However, one pro, Mizuho, recently downgraded its target price for SOFI stock from $30 to $17.
SoFi Technologies recently received a bank charter that will allow it to operate in all 50 states. That means it’s going to be regulated to a higher degree, for one. It also means SoFi Bank is in a precarious position due to the times we’re in. Inflation is rising, which is going to trigger the Fed to raise interest rates.
That’s going to make SOFI stock less attractive. What I see in SoFi is a company that is returning to the traditional finance model it was originally trying to innovate — which is not particularly attractive.
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On the date of publication, Alex Sirois 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.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
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