Avoid the Drop: 7 Stocks to Unload Before They Slump
With inflation showing signs of cooling, and hope the Federal Reserve may be wrapping up its rate-hiking campaign, markets have been moving aggressively higher. While that’s been great news for most stocks, there are still a few top stocks to sell immediately.
Stocks to Sell: Safety Shot (SHOT)
One of the top stocks to sell is Safety Shot (NASDAQ:SHOT) is a tiny company with a unique product. The firm has a patent for a beverage which is supposed to help lower people’s blood alcohol content. In theory, this product could help people manage alcohol more quickly and avoid drunk driving or other unwanted consequences of excessive alcohol consumption.
It’s an intriguing idea. Whether the product will work as expected as a mass market offering remains to be seen. To that point, last quarter, Safety Shot generated just $484,000 in revenues while losing more than $7 million overall. Investors should always be skeptical of tiny companies claiming to have a novel offering. Maybe it will work, but oftentimes it won’t. I’d also point out that the company used to be named Jupiter Wellness and wanted to sell CBD products but quickly pivoted away from that after failing to generate commercial traction.
Traders have successfully launched a short squeeze in SHOT stock, sending shares up several hundred percent over the past month. However, given the weak financial results, SHOT stock is likely to plunge once the market sobers up.
Cameco (NYSE:CCJ) is one of the world’s largest uranium mining companies, and also makes our list of top stocks to sell.
While uranium mining is not typically a hot industry, it has heated up in 2023. A near-term shortage in the spot uranium market has caused the price of the element to soar. Russia’s war against Ukraine has further restricted some uranium supplies that would normally be available to the market.
That’s all fine as far as the uranium market goes. But a brief spike in the price of uranium hardly ensures fortunes for the mining companies. As uranium is a thin market with limited long-term futures contracts, it’s harder to hedge and lock in these higher prices for longer.
In any case, after rallying more than 90% over the past 12 months, CCJ stock is selling for a stunning 70 times forward earnings. Buying mining companies at a 70 price-to-earnings ratio (P/E) almost never works out well in the long run.
Stocks to Sell: Royal Caribbean (RCL)
Royal Caribbean (NYSE:RCL) is a large cruise ship operator. The firm’s ever-more-luxurious ships offer a one-of-a-kind party and leisure experience at sea.
Royal Caribbean has roared back from the pandemic, with shares recovering their prior losses. People have come back to cruise ships in droves after the initial shock to the industry.
However, traders are missing an important piece of the story. Royal Caribbean took on a massive amount of new debt and issued large blocks of new shares during the pandemic to survive. This has made Royal Caribbean worth much less, on a per share basis, than it was back in 2019.
This circles back to the outlook heading into 2024. Consumer spending appears to be waning amid a softening economy and higher interest rates. And Royal Caribbean itself suffers from rising interest rates, given its $18 billion in long-term debt and more than $28 billion in total liabilities. This makes RCL stock an awfully dangerous one to hold going into a potential recession.
AMC Entertainment (AMC)
It’s like a movie series that keeps churning out increasingly uninspired sequels at this point. AMC Entertainment (NYSE:AMC) shares continue spiraling lower amid a combination of underwhelming business results and management decisions which have frustrated shareholders.
AMC’s recent quarterly earnings were better than usual, with the company generating a small profit for once. But movie attendance remains down 16% compared to 2019 levels. That’s even with several hit movies over the past quarter.
And despite the small profit, AMC still needs yet more cash to service its massive debts. To that end, AMC launched another stock offering, further diluting already suffering shareholders. The company’s questionable capital allocation decisions, such as investing in struggling silver company Hycroft Mining (NASDAQ:HYMC), have greatly impaired any efforts at a comeback for the cinema operator.
Stocks to Sell: Draftkings (DKNG)
Sports betting operator Draftkings (NASDAQ:DKNG) has seen its stock price rally more than 30% in November. For traders, that’s a risky bet that is likely to go bust.
Draftkings is making progress, to be sure. But the firm lost a stunning $1.0 billion over the past 12 months. The fact that its earnings results show that it is paring its losses a bit is far from it becoming a successful or profitable gaming operation in the near future.
Revenues grews 57% year-over-year, which is the heart of the bull case for DKNG stock. However, investors should closely watch how much is spent on promotions and marketing to attract those additional revenues. So far, Draftkings has done little to demonstrate that it can operate this business without running large losses.
Kinder Morgan (KMI)
Kinder Morgan (NYSE:KMI) is one of America’s largest midstream energy companies. It operates a variety of pipelines and other energy logistics and infrastructure assets.
While that’s a fine business, Kinder Morgan’s aggressive use of leverage has gotten the firm in trouble in the past. In 2015, KMI stock plunged from $40 to $15 as the firm was forced to slash its dividend thanks to its excessive debtload. History may be set to repeat.
Though Kinder Morgan has sold some assets and paid down a bit of its debt, it still has $31 billion of debt on the balance sheet. A sizable chunk of that comes due over the next year. As debt matures and has to be rolled over, Kinder Morgan will be forced to pay much more interest thanks to the spike in rates since 2020. This will put pressure on earnings and potentially strain the firm’s current 6.7% dividend yield.
Cava Group (CAVA)
Investors would be well-rewarded if that ultimately plays out. But it’s a tricky road. For every chain that aims to be the next Chipotle or Panera, a bunch end up flaming out well before making it to that level of success.
The fast casual market dining market is far more competitive than it used to be. And inflation and economic strain are putting pressure on consumers. Given Cava’s sky-high valuation ratios, it seems likely that CAVA stock will flounder in coming years.
Perhaps Cava is closer to the next Shake Shack (NYSE:SHAK) — a firm who has displayed excellent growth over the past decade but whose stock has not performed well since its 2014 IPO due to its drastic overvaluation when shares started trading.
On the date of publication, Ian Bezek 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.