The stock market’s strong 2023 start is at risk of failing, suggesting that investors consider stocks to sell.
Last week, the S&P 500 fell by 1.05%. The uptrend lost momentum when the index approached around 4,200. The market top could encourage investors to take profits.
When strong momentum and positive sentiment lifted weak companies with it, cautious investors may sell those firms first.
Companies that have high debt, increasing costs from inflation, and minimal profits are some of the characteristics that investors shun. When investors swing from greedy to fearful, they will sell those stocks before they fall further.
These are the three stocks to sell before everyone else does.
| CCL | Carnival | $11.60 |
| UAL | United Airlines | $49.07 |
| U | Unity Software | $38.05 |
Carnival (CCL)
Carnival (NYSE:CCL) accumulated debt during the Covid pandemic to stay in business. The cruise line posted a loss of $1.27 a share in its fourth quarter of 2022.
For the full year 2023, the company expects higher bookings as more markets open for cruise travel. Investors who bet that the end of Covid protocols will lift profits are taking too big a risk.
Carnival is spending heavily on marketing this year. It wanted to build on top of strong Black Friday and Cyber Monday bookings. The company is not confident that it has a strong brand awareness to attract more customers. Carnival cannot offset the high advertising costs by raising ticket fares. Competition is fierce in the cruise line business.
News of Russia cutting oil output by 500,000 barrels per day in March should raise energy costs. This increases Carnival’s operating costs, further pressuring it to raise prices and hurting booking volumes.
United Airlines (UAL)
United Airlines (NASDAQ:UAL) failed to rally further after posting Q4/2022 results. Markets likely priced in the strong pre-tax margin of 9.1% and revenue growth already.
United’s cost structure could rise in 2023. It needs to hire more staff to meet increased demand. Profitability could weaken if passenger traffic falls suddenly. The airline might introduce a higher surcharge to offset higher oil prices. It cannot lower its operating costs quickly if demand shifts to the downside.
Lower disposable income will dissuade travelers from using airlines. Elevated inflation is hurting travelers’ disposable income. When the Bureau of Labor Statistics posts Jan. 2023 inflation data, investors may estimate how much disposable income fell in the last month.
In December 2022, United announced a historic order to buy up to 200 new Boeing Widebody planes. The company’s heavy capital spending increases investor risks.
Although the firm will decrease carbon emissions per seat by 25%, the customer ultimately pays for the upgrade. Higher ticket prices will hurt demand.
Unity Software (U)
Unity Software (NYSE:U) develops games. The stock gained nearly 33% so far in 2023. Stock markets have a habit of bidding shares higher when a company announces job cuts. Such cuts lower costs in the short term while damaging long-term prospects.
Unit cut 284 jobs, on top of the 225 jobs cut in June 2022, which is partly related to its ironSource acquisition. The gaming platform industry is increasingly competitive. Gamers who have less disposable income from inflation will not spend as much for entertainment.
Unity must deliver on positive cash flow. The company expects its combination with ironSource will transform the industry and result in positive operating cash flow.
Unit needs its new Growth platform will outperform the industry. Until the company demonstrates it is growing market share, investors should consider Unity as one of the stocks to sell before it falls from here.
On the date of publication, Chris Lau 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.