Many investors agree that it’s wise to “sell in May and go away.” This age-old Wall Street adage stems from the observation that stock market returns tend to be weaker during the summer months (May through October) compared to the winter months (November through April). This phenomenon is sometimes referred to as the “Halloween indicator” or the “sell in May and go away” effect. It suggests that investors should then return in November and continue the cycle.
Historically, this strategy has outperformed the buy-and-hold approach by slight margins. However, since 2020, this wisdom has applied less and less. Selling in May would likely cost you much more in fees and taxes than if you simply held through. In my view, this doesn’t necessarily mean there aren’t stocks you can profitably sell or short in May.
Many struggling businesses are unlikely to make it out once the storm clears. Selling or shorting such companies is a prudent idea this month. The key difference is that you should sell and never come back to these stocks again. Let’s take a look at the seven stocks to sell.
Bitcoin Depot Inc. (BTM)
Bitcoin Depot’s (NASDAQ:BTM) underlying trends give me pause about the company’s future. Wild swings in Bitcoin’s (BTC-USD) price can seriously impact transaction volumes and the profitability of crypto miners. However, you’d think that the recent bull run would’ve caused at least some level of top-line growth and profits for the past quarters. But revenue is still flat, with margins deeply in the red.
Also, the “crypto winter” has led to consolidation in the industry, with major players having their own Bitcoin ATMs. This more competitive landscape may force Bitcoin Depot into an unsustainable price war to hold on to market share. While their mission to make crypto as easy to use as cash is a nice idea, I don’t think this company can hold itself together in the long run.
Analysts expect revenue could decline over 10% this year for Bitcoin Depot despite Bitcoin reaching an all-time high. The worst thing is that all Bitcoin ATMs have fees that are way too high and still require KYC. Why use them when you can just use an exchange and wire money directly to your bank?
AMC Entertainment (AMC)
AMC’s (NYSE:AMC) potential movie theatre comeback has been greatly exaggerated, even with high-profile blockbusters on the schedule. They did beat EPS by 19.6% in Q1 and met revenue expectations. However, the weaker Q2 guidance should not at all be underestimated. Revenue fell by 0.3%, and earnings are still red. Their traditional business model clearly faces an uphill battle competing with on-demand options.
AMC is making desperate moves, like hyping their popcorn brand and crypto offerings, just to stay relevant. With debt weighing them down and expenses rising, I estimate AMC could run into serious cash flow problems soon should trends fail to turn around. The “apes” may finally be waking up to these realities.
Rate cuts will lower losses. But when megatrends in the entertainment industry act as headwinds, it would be wise to put those dollars into more forward-thinking entertainment plays built for the future rather than this fading meme stock.
ChargePoint (CHPT)
ChargePoint’s (NYSE:CHPT) fourth quarter 2024 results highlight challenges I see with slowing EV adoption amid economic uncertainty. While they do have a very big market share in the industry, CHPT could hit a “growth ceiling.” I am bullish on the EV charging space. However, it is abundantly clear that EVs will take much longer than expected to dominate the road. This makes me believe it is one of the stocks to sell in May.
I wouldn’t be shocked if CHPT’s annual revenue growth gets worse as it matures. At that point, investors may be better off rotating to more established EV options, generating profits today instead of chasing future potential. Growth has limits, so stability and cash flows will matter more. Analysts expect just 8.2% revenue growth this year. They still expect sales growth to be around 20-25% annually on average for the next decade. But, given the -81.8% net margin that ended up going down another 58.9% year-over-year (YOY), holding CHPT will only bring more pain.
Appen Limited (APXYY)
Artificial intelligence (AI) is one of the hottest sectors right now, and if a company fails to capitalize on it, it really isn’t a good look. Appen’s (OTCMKTS:APXYY) revenue fell by 34.6% in Q4 of 2023. Losing that $82.8 million Google contract signals that tech heavyweights may increasingly want to control more aspects of data work in-house rather than relying on outside vendors like Appen Limited. This sting is going to linger for a long time.
AI can do a lot of jobs on its own these days. So outsourcing labor through contracts makes much less sense for big companies. And, if you’ve read the news recently, you’d know that Google is hiring from India and Mexico now instead of relying on third parties.
Analysts expect Appen Limited’s revenue growth will slow to mid-single digits in the years ahead as their legacy work flounders. As exciting as generative AI is, investors may want to put their money behind the companies pioneering the core technologies rather than auxiliary service providers getting edged out. I don’t think cost-cutting will lead to a rebound if this “AI” company can’t grow its top line.
The Beachbody Company (BODI)
Beachbody’s (NYSE:BODI) latest results should cause serious concern among investors. Management may be patting themselves on the back for cost-cutting. But the reality is, their top line continues crumbling as consumers flee the brand. They need to win customers back, and I don’t see a real plan to do that.
Pivoting to subscriptions is also risky. If customer churn surges, as feared, recurring revenue will plummet. Analysts expect exactly that, with revenue expected to decline 17.3% in 2024.
Frankly, Beachbody is slow, expensive and behind the curve. It has many red flags even after the cost-cutting measures. Its Altman-Z score of -2.86 puts it in the distress zone, while revenue has been falling consistently since 2021. It is definitely one of the top stocks to sell in May.
Comscore (SCOR)
Comscore (NASDAQ:SCOR) is a media measurement and analytics company. One look at its financials, and you’ll quickly realize a lot is going wrong. Its top line has stagnated for nearly a decade, and it has made losses every single year since 2010. Investors would be more than happy to still buy the stock, but they need to show growth to justify those losses. That isn’t the case here. Thus, the stock is down 93% in the past five years.
It has slowly narrowed its losses over the past few quarters. However, its net margin is nearly -30%. It will likely take years for this company to break even and start growing its revenue again (if ever).
Terran Orbital (LLAP)
Terran Orbital (NYSE:LLAP) used to be a stock I was previously quite bullish on.
But my sentiment has completely changed due to some personal experiences and recent news. Management actually reached out to me a few months back for a private interview session with their chief executive officer (CEO). However, I made a counter-proposal to just ask them some questions that I felt would help provide more clarity for readers.
I asked about recent contract wins, deliveries and future targets to give a better sense of the growth trajectory. Also, I queried about the outlook for achieving profitability and positive cash flow, as well as expanding margins – key issues given the current losses. Unfortunately, I never received a reply, despite them reaching out to me for the questions.
While my personal experience does not entirely determine my investment view, LLAP’s decision not to participate in an earnings call for Q4 raises red flags. They’ve missed revenue estimates by significant margins for the past four quarters. Most concerning is the net margin, which sits at a massive negative of -135.6%, down 31.2% in Q4 alone. Clearly, things are not trending in the right direction. Given the lack of transparency and poor fundamentals, LLAP is definitely not a stock I would feel comfortable buying at this time. In fact, it looks like a prime candidate regarding stocks to sell in May.
On the date of publication, Omor Ibne Ehsan did not hold (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.
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