Markets seem to have their mojo back to start the month of May. After suffering a downturn in April, equities are once again rallying on news of strong corporate earnings. Also, the indices have hopes that the U.S. Federal Reserve still plans to lower interest rates at some point this year.
However, May is typically a precarious month for stocks and prone to volatility. The Wall Street saying “sell in May and go away” refers to the historical underperformance of equity markets during the six-month period from May to October each year.
Thus, investors shouldn’t be lulled into complacency with the current rally to start May. This is especially true with some stocks whose companies delivered terrible financial results for this year’s first quarter and provided a bleak outlook for the road ahead. Many well-known companies continue to struggle and their share prices underperform. Should the current rally falter and the market stumble, its might spell disaster for these stocks and their shareholders.
So, let’s talk about three Nasdaq stocks that investors are better off selling in May.
Starbucks (SBUX)
Starbucks (NASDAQ:SBUX) first-quarter print was a train wreck, sending the stock down 17%. The retail coffee chain reported both disappointing financial results and lowered its forward guidance, a double whammy on Wall Street. Starbucks announced earnings per share (EPS) of 68 cents compared to 79 cents that was expected among analysts. Revenue in Q1 totaled $8.56 billion, missing Wall Street forecasts of $9.13 billion. Sales were down 2% from a year earlier.
Same-store sales decreased 4% as traffic at Starbucks cafes declined 6%. The pain was widespread, with Starbucks reporting declining same-store sales and customer traffic across all regions and markets. Analysts had anticipated same-store sales growth of 1%. The poor results were blamed on consumers pulling back on discretionary spending as prices rise to counter inflation, as well as on slowing economies such as China.
Looking ahead, Starbucks lowered its forecast for 2024 earnings and revenue, saying that its outlets are likely to continue underperforming for several more quarters. The situation is so bad that retired Starbucks Chief Executive Officer (CEO) Howard Schultz took to social media to criticize his former company and insist that the chain fix its in-store experience to attract customers. SBUX stock has fallen 32% over the last 12 months.
Tesla (TSLA)
Tesla’s (NASDAQ:TSLA) stock is volatile even at the best of times.
In a market downturn, things could get ugly fast. And while TSLA stock has risen from its 52-week low as investors cheer plans for a cheaper electric vehicle (EV), the company’s latest earnings contained some worrisome data. Notably, Tesla’s Q1 earnings missed Wall Street’s targets across the board. The company reported its biggest revenue decline since 2012. Tesla’s net income fell 55% in Q1 from the previous year.
Despite the poor results, Tesla’s stock has been marching higher after the company announced plans to bring a more affordable EV to market in 2025. Still, even with the current gains, TSLA is down nearly 30% on the year and one of the worst performers in the Nasdaq index. While Tesla CEO Elon Musk spent much of the Q1 earnings call talking up a more affordable EV and plans for Robotaxis, he also warned that Tesla’s “volume growth rate may be notably lower than the growth rate achieved in 2023.”
The extremely poor Q1 financial results and continued warnings from management make Tesla a Nasdaq stock to sell now.
eBay (EBAY)
E-commerce company eBay (NASDAQ:EBAY) had been doing so well before its Q1 earnings results were made public. Sadly, the stock has fallen 6% after eBay offered second-quarter guidance that disappointed analysts and investors.
For Q1, eBay reported EPS of $1.25 and revenue of $2.6 billion. Those results beat Wall Street consensus forecasts of $1.20 a share in profit and $2.53 billion in sales. The strong showing was due to promoted listings and display advertisements that grew 30% from a year earlier.
Unfortunately, the Q1 print was overshadowed by eBay’s second-quarter outlook. The company said it expects revenue of $2.49 billion to $2.54 billion. Profits for the current quarter are anticipated at $1.10 to $1.15 a share. Wall Street analysts had $2.56 billion in sales and profits of $1.14 penciled in for Q2. Management said the lowered Q2 guidance reflects a downturn in the German and British markets. Those are regions where e-commerce growth has turned negative, notably for consumer discretionary items.
The current downturn in eBay stock brings the company’s gain over the last year to only 7%, badly trailing the S&P 500 index’s 25% increase during the same period.
On the date of publication, Joel Baglole 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.
