This is a somewhat perilous time to be long U.S. stocks. While the economy is rapidly growing and inflation is dropping, the market seems to be on the verge of a meaningful correction. All after a recent Fitch Ratings downgrade of U.S. debt, and Moody’s lowered ratings on U.S. banks. As a result, many stocks have been plunging in recent days. With that in mind, here are seven stocks to sell in August. They represent companies with subpar business models that investors should stay far away from now.
Coinbase (COIN)
Coinbase (NASDAQ:COIN) is already crashing and burning. It seems that the market realized something that’s been clear to me for many months: Washington is out to get Coinbase.
The catalyst that caused investors to wake up to this reality was a July 31 article in The Financial Times. In the piece, Coinbase CEO Brian Armstrong said that the US SEC asked COIN to stop facilitating trading in every cryptocurrency except Bitcoin (BTC-USD). All because the agency views all of the other cryptos as securities. In addition, Armstrong was also quoted as saying that the US SEC could indeed force Coinbase to stop listing all of the cryptos it views as securities.
Reading between the lines, Armstrong is admitting that the agency could prevent Coinbase from listing every crypto except Bitcoin. Moreover, I think that, even if COIN wins its court case against the US SEC (a scenario I consider to be unlikely), Washington will find another way to impose its will upon the company, such as by choking off its financing from banks or passing a law to force it to provide detailed information about its customers to the federal government.
Disney (DIS)
Disney (NYSE:DIS) reported rather dismal second-quarter results on Aug. 10 as its top line rose just 3.9% year over year. Worse, it was $200 million below analysts’ average estimate. In addition, DIS also reported a loss per share of 25 cents, as compared to its year-earlier loss of 77 cents.
For years, I’ve argued that Disney was being badly hurt by cord-cutting. That reality appears to have finally penetrated the Street’s consciousness, as shares plunged 22% in the last year. Also, CNBC’s Josh Brown says DIS is indeed being massively, negatively impacted by cord-cutting. In addition to cord cutting, the company is also being hurt by the weakness of movie theater attendance and its public spat with Florida Gov. Ron DeSantis.
Southwest Airlines (LUV)
Airline fares tumbled 8.1% in July month over month, which is terrible news for Southwest (NYSE:LUV) and its peers. Moreover, the decline increases my confidence that U.S. travel trends are slowing after many Americans spent a great deal of time and money on “revenge” travel. In addition, oil prices have risen lately, which could squeeze the airline’s profit margins. I should also note LUV has a forward price-earnings ratio of 14.9x, which is actually a rather high valuation compared with other airlines.
Lowe’s (LOW)
As I noted in a previous column, high-interest rates are preventing most homeowners from selling their homes and moving to new ones. Conversely, when they move into new houses, they’ll have to pay much higher rates. That’s a tough dynamic for Lowe’s since the home improvement retailer sells many products to new homeowners who are looking to improve their new abodes. The Telsey Advisory Group cuts its rating on the stock for similar reasons. In addition, Lowe’s current forward price-earnings ratio of 16.8x is excessive, given the housing market’s weakness.
AMC Entertainment (AMC)
AMC Entertainment (NYSE:AMC) actually reported decent Q2 results. Revenues were up 15.6% year over year. Net income even came in at $8.1 million. However, the company’s operating activities still burned $13.4 million of cash, while it generated a free cash flow loss of $62 million.
Meanwhile, the company is selling shares of its preferred stock, AMC Entertainment Holdings (NYSE:APE), to pay down its debt. However, since the company wants to convert APE stock to common shares, the sales will end up diluting the current owners of AMC stock. Meanwhile, as of the end of last quarter, the movie theater owner had staggering debt of $9.66 billion and cash of only around $500 million.
In the current environment, I don’t think many investors will be interested in buying the shares of a company that’s in a declining industry, has huge amounts of debt, and is still burning cash.
Palantir (PLTR)
Palantir’s (NYSE:PLTR) recently announced Q2 results didn’t do much to justify the AI hype surrounding it. The company’s top line increased 12.8% versus the same period a year earlier, while its income from operations came in at a measly $10 million. Also noteworthy is that its revenue from commercial entities climbed just 10% year over year. Given that data, I just don’t see evidence that the firm’s AI business is growing rapidly.
Holding a similar view on PLTR was Morgan Stanley, which noted the company’s revenue growth actually slowed last quarter, while its full-year guidance does not foresee an acceleration. The bank noted that the shares are changing hands at a very high forward price-sales ratio of 16 times.
Target (TGT)
Target (NYSE:TGT) is facing multiple challenges. According to Zacks Investment Management Client Portfolio Manager Brian Mulberry, the retailer is once again having difficulties managing its inventory. Additionally, it has experienced “$500 million worth of shrink or theft” from its stores, Mulberry reported. Meanwhile, TGT seems to be one of the victims of the “anti-woke” movement, causing its approval rating among consumers to drop to 65% from 71%. Finally, Seeking Alpha columnist Skeptical12 reported that TGT does not actually have a turnaround plan.
On the date of publication, Larry Ramer was short COIN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
