Six Stocks That I Would Shun
Posted: May 25, 2021
May 24, 2020 (Maple Hill Syndicate) – Wall Street issues about eight buy recommendations for every sell recommendation. But at times, knowing when to sell is the most important skill in the stock market.
Here are six stocks that I think you should sell now, if you own them. If you don’t own them, I’d avoid them. And if you sometimes sell short, betting on selected stocks to decline, I’d consider these.
Procter & Gamble
Procter & Game Co. (PG) is a favorite of conservative investors. No matter what happens to the economy, they reason, people will still need Ivory soap, Tide laundry detergent and Gillette razor blades.
I think, though, that this stalwart is a poor bet now. Sales growth in the past five years has averaged less than 3%; earnings growth less than 1%. And yet the stock fetches 25 times earnings and seven times book value (corporate net worth per share). You’re paying too much for its reputation.
At Mondelez International Inc. (MDLZ), home of Oreo cookies and Cadbury candy, five-year sales growth is just 1% a year, and earnings growth is only a fraction of a percent. The stock sells for 24 times recent earnings, too much in my opinion for such anemic growth.
Sales and earnings growth have been negative for the past five years at Tivity Health Inc. (TVTY), a Franklin, Tennessee, company that offers fitness and diet programs. It briefly owned Nutrisystem and the South Beach diet, but sold them to Kainos Capital after only ten months.
I wonder whether that sale would ever have happened if Tivity had a stronger balance sheet. Recently its debt was 16 times the company’s net worth.
Brown-Forman Corp. (BF.B) is the largest maker of distilled spirits in the U.S., and one of the largest in the world. Jack Daniel’s whiskey is its best known product but it has other brands as well, and sells its drinks in some 170 countries.
The issue as I see it is that younger people are less enthusiastic about alcoholic drinks than their parents were. That may account for the fact that revenue has grown only about 4% a year the past five years, and earnings slower than that.
The stock trades for 42 times earnings and 15 times book value – too expensive for my taste.
Based in New York City, TG Therapeutics Inc. (TGTX) is a biotechnology company working on drugs for lymphoma, relapsing multiple sclerosis and autoimmune diseases. It has two drugs approved so far and had revenue of about $790,000 in its latest quarter.
All five analysts who cover TG rate it a buy. But I’m concerned that losses are mounting. The company has reported a loss in 14 of the past 15 years, and last year’s loss of $279 million was its largest yet.
I suspect that this will prove my most controversial sell recommendation this year. I think the outlook is unfavorable for Simon Property Group Inc. (SPG), the premiere mall owner in the U.S.
Yes, people are now returning to shopping malls that looked like ghost towns during the thick of the pandemic. But I’m not looking at the one-year picture here; I’m looking at the ten-year trend. The long-term trend is for consumers to order online, rather than to schlep to the mall.
So, even though Simon owns many of the largest and most prestigious malls, I think it will struggle to raise rents. If I’m right, the company’s debt – currently more than eight times equity — will feel like a heavier burden.
I pride myself on being the only stock market commentator (so far as I know) who systematically reports on the results of past recommendations – for better or worse.
This means I must occasionally eat crow. And I’m chewing some now (it tastes a bit like chicken).
Beginning in 2000, I’ve written 13 columns devoted to sell recommendations. The average result on stocks I spurned has been a gain of 15.84%, which is better than the average of 12.67% for the Standard & Poor’s 500 Index over the same 13 one-year periods.
If I could take back just one recommendation, out of about five dozen, my “sell” picks would have underperformed the S&P (as they should). The spoilsport pick was Hanson Natural Corp. (later renamed Monster Beverage), which rose 492% in the year after I said to sell it in May 2005.
Bear in mind that my column results are hypothetical: They don’t reflect actual trades, trading costs or taxes. These results shouldn’t be confused with the performance of portfolios I manage for clients. Also, past performance doesn’t predict future results.
Disclosure: I have no positions, long or short, for myself or clients, in the stocks discussed today.
John Dorfman is chairman of Dorfman Value Investments in Newton Upper Falls, Massachusetts. His firm or clients may own or trade the stocks discussed here. He can be reached at firstname.lastname@example.org.