3 Stocks to Sell ASAP Before a Painful Downturn
What a year 2022 has been for the stock market. The S&P 500 is down 23.1%, the Dow Jones is off more than 16.5%, and the tech-heavy Nasdaq, 32%. So, by and large, we’re already deep into a painful downturn, with investors looking for stocks to sell, rather than buy, right now.
September inflation numbers indicate that things are likely to get worse before they get better. The Fed’s interest rate hikes in 2022 haven’t yet produced the results that the central bank hoped they would. That means the Fed is highly likely to undertake its fourth consecutive interest rate hike of 75 basis points (0.75%) when the Federal Open Market Committee (FOMC) reconvenes on Nov. 2.
The concern is that inflation is a lagging indicator, and the Fed may already have overcorrected. Further significant increases may push us into recession if we aren’t already there, or worsen the recession if we are.
That means the stocks below, already identified as weak, are likely to face further difficulty. This makes these companies stock to sell before things get worse.
Meta Platforms (META)
First on this list of stocks to sell is Meta Platforms (NASDAQ:META). META stock has faltered under its rebrand. Part of the reason Meta has declined from $338 to under $130 this year is undoubtedly due to the effects of inflation and the Fed’s response. Higher interest rates ripple across the economy. Accordingly, advertising revenue, which Meta depends on heavily, slides as the company’s clientele advertises less.
Meta’s financial statements reflect that truth. Ad revenues were up slightly the first half of this year, despite dipping slightly in the three months that ended June 30. Quantitative tightening is partly to blame for Meta’s woes, to be sure. However, investors cannot blame external factors alone.
That’s because a lot of Meta’s troubles have been self-inflicted.
Reality Labs, which is essentially the Metaverse division the company has pivoted toward, is quickly turning into a money pit. In fact, Reality Labs lost $2.8 billion in the 3 months that ended June 30th. It lost $2.43 billion the quarter before.
And while that’s a relative pittance to a company like Meta in the grand scheme of things, its Metaverse division is burning cash while heading in the wrong direction. The worlds Meta has built are often unpopulated due to a lack of interest and complaints about glitches, as well as poor graphics.
If Zuckerberg is going to turn Meta into some hardware powerhouse, it isn’t working. The Metaverse transition will take years to materialize, but META stock will likely get worse before it gets better.
Franklin Resources (BEN)
Franklin Resources (NYSE:BEN) stock makes this list of stocks to sell, despite already having fallen roughly 35% year-to-date. On the one hand, a bullish investor might see this as a buy-the-dip opportunity in a financial stock with strong brand recognition. Additionally, BEN stock comes with a dividend yield of 5.34%, with distributions that haven’t been reduced since 1982.
However, the analysts covering Franklin Resources, usually optimistic by nature, are souring on it. Of the nine analysts providing coverage, four rate it a sell, and four rate it a hold. The average 12-month price target for BEN stock sits at $23.88, only slightly higher than its current price, near $23.
This company’s lower price is a result of a few things. Overall, investors can blame the markets for part of the downturn. Metrics such as the company’s dividend yield rise as the price falls, because of the way it’s calculated. Those falling prices also make metrics like the company’s price-to-book ratio seem appealing for the same reason.
However, Franklin Resources has real issues. The most serious of these may be asset growth that is outpacing revenue growth over the last 5 years at a rate of 22% to 5.9%. That means the company is investing in assets that aren’t producing as much revenue, which is never a good sign.
Last on our list of stocks to sell is cannabis player Tilray (NASDAQ:TLRY). TLRY stock began 2022 as a penny stock and that’s where it remains, with shares priced near $3.70. That’s not a knock on penny stocks by and large. There are plenty of respectable, investment-worthy companies classified as such.
However, Tilray, as the largest cannabis company in the world, remains a stock to avoid. This company continues to prove that operators haven’t figured out how to efficiently make money in the young sector. Quantitative tightening isn’t helping the sector with speculative, money-losing growth stocks taking a greater beating.
But even if interest rates were to magically revert to 2021 levels overnight, investors would still be wise to avoid Tilray. The truth is that Tilray can hardly be classified as a ‘growth’ stock based on its most recent earnings results.
Revenues declined by $14.81 million, falling to $153.21 million in the 3 months that ended Aug. 31. Basically, Tilray simply finds novel ways to lose money. That said, the company’s cost of goods sold wasn’t a significant problem for the firm, despite many other firms suffering from higher costs.
However, when all was said and done, Tilray reported a net loss of $65.79 million in the period. That was a 96% greater loss than a year earlier. Investors should not care that the company has $500 million in cash or that it expects to be cash flow positive this year. Cannabis has proven to be a losing business.
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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.