In some cases, a market downturn is an invitation to acquire shares of compelling enterprises at a deep discount. It’s akin to buying winter jackets in the summer at bargain rates. Yes, they may be last year’s fashion and they’re not relevant at the moment. Eventually, though, they’ll be worth their weight in gold. On the other hand, some companies may be doomed, which brings us to stocks to sell.
It’s a difficult concept to discuss because of the hard emotions involved. I’m going to tread carefully as a result. Nevertheless, the main point is that the concept of being greedy when others are fearful only works to an extent. Primarily, you must target enterprises that are truly viable. If not, chances are that you may see so-called cheap stocks become even cheaper.
Plus, the more you hold onto losing endeavors, the greater the opportunity cost you absorb; that is, you’re not spending time and resources on ideas that may actually benefit you. With that in mind, below are stocks to sell.
Lululemon (LULU)
Earlier this month, InvestorPlace’s Will Ashworth wrote a piece on another platform about Lululemon (NASDAQ:LULU). He presented a framework in which traders could benefit from LULU’s unusual options activity. Jokingly, I sent an email to him saying that I should write a story entitled, “Don’t Listen to Will: LULU Stock is Going to Zero.”
Again, that’s just friendly banter: I don’t think LULU stock is going to implode completely. That said, I’m not sure the selloff is done. Fundamentally, Lululemon appears to have missed in terms of meeting consumer preferences, which is bad enough. However, the consumer market is slow, especially for discretionary items like athletic wear.
Part of the problem is that people already bought that stuff during the initial wave of Covid-19. Further, Lululemon competitors like Nike (NYSE:NKE) haven’t exactly performed well either. So, it’s not just a LULU problem but an industry-wide dilemma.
The thing is, I’m not sure that investors will pay 18.3X levered free cash flow for LULU stock. It’s roughly the same ratio as Nike’s and NKE is down 30% year-to-date. So, Lululemon may remain one of the stocks to sell.
Spirit Airlines (SAVE)
There’s no such thing as an easy idea for stocks to sell. However, if such a concept exists, discount airliner Spirit Airlines (NYSE:SAVE) would be my choice. Following a denial of a proposed merger with JetBlue Airways (NASDAQ:JBLU), SAVE stock probably can’t be saved. Look, I’m not here to pour salt on open wounds. But the reality is that since the beginning of this year, shares have lost over 84% of equity value.
Sure, it’s risky to actively bet against SAVE stock. According to Fintel, the airliner’s short interest stands at 30.18% of its float. The short interest ratio also lands at 8.4 days to cover. That’s how many trading sessions it would take for the bears to unwind their short positions. However, without the merger, the company simply can’t generate any traction.
Plus, we’re looking at significant problems here. In the best-case scenario, revenue may reach $5.47 billion at the end of fiscal 2025. That’s just 2% higher than 2023’s tally of $5.36 billion. And we’re talking about a discount airliner here: Spirit should be winning on the top line.
Instead, investors will be paying $2.60 per share for levered free cash flow (FCF) of $473 million in the red. That doesn’t seem like a good deal.
Big Lots (BIG)
If I had to go with another idea for easy stocks to sell, it would have to be discount retailer Big Lots (NYSE:BIG). As fans of former President Donald Trump might say, Big Lots is Joe-ver. Recently, BIG stock dipped below the $1 line. That’s a major no-no. Plus, the company only has a market capitalization of just under $29 million. That’s another no-no. A delisting seems inevitable.
Plus, BIG stock gave up nearly 88% of equity value since the beginning of this year. In the past five years, shares have hemorrhaged almost 96%. I don’t want to sound macabre but it’s giving off that rattling sound of a person about to expire. What makes matters worse is that in an economically challenged environment, discount retailers should thrive. Big Lots is obviously struggling.
Plus, bad news risks compounding bad news. Because the company faces significant challenges, goods manufacturers aren’t incentivized to sell product at its stores. Instead, they’re going to allocate choice inventory to retailers that aren’t about to implode.
With sales projected to steadily decline in the years ahead, BIG is simply one of the stocks to sell.
On the date of publication, Josh Enomoto 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
