7 Stocks to Sell Before February on Fed Policy Woes
February is a few weeks away. That’s a fairly short window in which to decide to sell for some investors. For traders, obviously that’s a much less important consideration. In either case, both types of investor have reason to believe specific equities have a reasonable chance of declining before then. It’s led to speculation on what stocks to sell.
The most relevant catalyst is what has been referred to by some as the end of easy money. The release of the Fed’s mid-December policy meeting minutes strongly signaled it would raise interest rates quicker than expected. That means lending will be more difficult, sooner than expected.
The files “showed Fed officials uniformly concerned about the pace of price increases that promised to persist, alongside global supply bottlenecks ‘well into’ 2022.” The faster-than-expected rate hikes imply that officials are more concerned with inflation concerns even in the face of the Omicron surge.
The news saw markets move away from technology stocks that usually suffer when treasury yields rise. That’s where worried investors should be looking to reduce their holdings as we move through the month. The pressure is not going to abate before then. With that in mind, here are several stocks to consider selling.
- AT&T (NYSE:T)
- Intel (NASDAQ:INTC)
- Tencent (OTCMKTS:TCEHY)
- Netflix (NASDAQ:NFLX)
- Zoom (NASDAQ:ZM)
- Xilinx (NASDAQ:XLNX)
- IBM (NYSE:IBM)
Stocks to Sell Before February: AT&T (T)
There are several reasons to seriously consider dumping AT&T shares in the very near term. One of the reasons that may surprise some readers relates to its dividend. AT&T now provides a strong dividend yielding 7.86%, making it attractive.
However, a recent article by my colleague Mark Hake points to a very distinct possible cut to that dividend. The idea was previously mentioned, and then tabled. And as Hake notes, “The truth is the company has not provided any substantial update to shareholders about the proposed dividend cut. In fact, they are ignoring the issue.”
On top of that, AT&T agreed to another delay of the rollout of its 5G services in the U.S. in early this month. U.S. Transportation Secretary Pete Buttigieg and FAA Administrator Steve Dickson had been pushing AT&T to delay its rollout due to safety concerns.
The company had already agreed to a month delay that pushed the rollout into January. This latest delay will extend the initiation of 5G service by at least another 2 weeks. Add general tech stock concerns based on Fed interest rate considerations, and you have a multitude of reasons to dump T stock.
Intel (INTC)
Intel has been a so-called underperformer for much of 2021. And by most traditional valuation metrics, it indeed is. As my colleague Faisal Humayun recently wrote, “In terms of valuation, INTC stock currently trades at a forward price-to-earnings-ratio of 9.8. The stock clearly seems undervalued with the S&P 500 index trading at a cyclically adjusted P/E ratio of 38.3.”
That said, Intel is already fully priced. It trades at just under $56 as I write this, and carries an average target price of $54.46. If we don’t even consider the implications of the Fed’s recent announcements, Intel already seems poised to remain sideways. When we do, the tech stock looks suddenly less attractive.
That’s why I’d stay away from Intel in the next few weeks and consider selling it in order to avoid losses.
That said, Intel has a catalyst that could bring its value higher in mid-2022. That is its plans to bring its self-driving-car unit called Mobileye public at that time. The Israeli firm could be valued at more than $50 billion, with Intel planning to hold on to a majority stake of post-IPO shares.
Stocks to Sell Before February: Tencent (TCEHY)
Tencent already had trouble. As one of the most prominent Chinese tech firms it was under constant scrutiny from an increasingly strict Beijing. That regulatory crackdown resulted in Tencent posting its slowest revenue growth rates since 2004.
The optimist’s view was then to play contrarian, establish a position, and hope Beijing eases. If it did, TCEHY stock might reasonably move quickly upward toward its nearly $80 target price. Unfortunately, that doesn’t look to be the case. All signals are that China will continue and perhaps ramp up its regulatory crackdowns.
That broad headwind was already a very serious issue for the firm. And now there is another as the Fed news likely won’t help Tencent. I wrote last month that I thought Tencent was a reasonable buy in 2022. That was before news emerged that China is likely to be even harder on tech in 2022. Tencent had agreed to play ball with the government and I saw that as a positive sign. Now I think there is no reason to continue to believe in Tencent in the short term.
Netflix (NFLX)
In the wake of the tech selloff following the release of the Fed’s December minutes, Netflix suffered. A report out of CNBC noted that Wall Street hedge funds undertook four separate sessions in which they collectively dumped tech stocks at rapid rates.
In fact, the spree marked the largest sale in dollar terms in more than a decade. Netflix suffered among the largest drops of any of the big tech firms.
And when it rains, it pours. Because on top of the Fed catalyzed dumping by Wall Street, an analyst warning prompts fresh concerns.
JPMorgan’s (NYSE:JPM) Doug Anmuth warned that Netflix could come up more than 2 million short on new global subscribers in Q4. The firm now projects 6.25 million new adds, down from a previous projection of 8.8 million.
Tech stocks benefited greatly in the easier money environment investors have become accustomed to. Expect Netflix to suffer as equilibrium shifts the balance back in the other direction.
Stocks to Sell Before February: Zoom (ZM)
It wouldn’t have been difficult to be bullish on Zoom when the Omicron variant first emerged. The new variant leads to greater distancing and renewed fears. In response, fewer and fewer and fewer employees return to their offices. Thus, Zoom has a potent catalyst as employees continue to stay home, utilizing Zoom more.
But now, with the Fed signaling that bond yield hikes trump Omicron fears, Zoom has trouble. ZM stock hasn’t cratered in the wake of the Fed announcement. But it has shown volatility and is trending downward.
Zoom had already tumbled even after posting stronger-than-expected earnings results in late November. The issue then was worries over slowing growth. Investors were already beginning to wonder why Zoom garnered such impressive valuations and whether they were sustainable.
It’s difficult to correctly judge Zoom for that reason. The company boasted 2,507 customers with trailing twelve month revenues of at least $100,000 then. It has strong business demand. But that must be judged against valuations. And the market may have been giving it too much credit it seems.
Xilinx (XLNX)
The reason investors should consider selling Xilinx before February has as much to do with the Fed as it does with China.
AMD’s (NASDAQ:AMD) acquisition of Xilinx has been pushed into Q1 of this year. At least, that is the expectation as of now. There really is no telling. What investors do now is that the merger has been approved in the U.S., the European Union and the U.K. China has yet to approve the merger. And that’s a real problem.
There is a real precedent that at least suggests that AMD’s acquisition of Xilinx may fail. Back in 2018, Qualcomm (NASDAQ:QCOM) failed to acquire NXP Semiconductors (NASDAQ:NXPI) after a two year battle to secure approval.
The lone approval hold out hindering Qualcomm’s bid? China. Given that AMD’s bid to buy Xilinx is now the longest pending public merger in the U.S., investors ought to worry.
Add in a beleaguered tech stock sector already reeling from the bond yield surprise and it’s easy to see why XLNX stock shouldn’t rise quickly.
Stocks to Sell Before February: IBM (IBM)
You could make an argument that IBM is a current tech stock that makes sense. That argument would be that IBM, as a ‘value’ tech stock, is sensible. After all, it has prioritized sharing earnings with investors as dividends. That hasn’t won it many fans as it has traded sideways over the past several years. Nevertheless, it is what the investment world considers value.
The company has prioritized investing in its shareholders over investing in itself. In tech, that is an antithetical approach to business. Tech is associated with growth, not staid value investing principles. So, rather than acting as an exciting tech leader developing game-changing ideas, IBM has floundered.
The company is now attempting to find a buyer for its Watson Health division. The venture was another ill-fated attempt to revive the aging tech company. The plan then will be to take the proceeds and find the next target to revitalize IBM. It seems like more of the same from a company that has disappointed investors for a long time.
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.
