Peruse the Internet for investment guidance and you’re likely to hear the adage that you shouldn’t consider stocks to sell when faced with volatility. Rather, you should buy up assets and securities when there’s blood on the streets. To be honest, it sounds bold and daring and something that alpha males do. However, blind adherence to adages can also be extremely dangerous – especially during a banking crisis.
While no theoretical upside limit exists with publicly traded securities, historically, what goes up must come down. In many cases – particularly with established blue chips – red ink represents a discounted buying opportunity. However, what goes down doesn’t always come back up. Sometimes, equity shares stay down for good, which is why you must take stocks to sell seriously.
To be sure, this topic generates plenty of controversy and hard emotions. We’re talking about money, along with underlying hopes and dreams. I get it. That’s why with this list, I’m combining objective data with analyst opinions. I’ll let you decide if these really are the stocks to sell as banks meltdown.
| BBBY | Bed Bath & Beyond | $0.81 |
| SPCE | Virgin Galactic | $4.10 |
| RDFN | Redfin | $7.97 |
| RKT | Rocket Companies | $8.39 |
| NBRV | Nabriva Therapeutics | $1.63 |
| IBIO | iBio | $2.34 |
| SFT | Shift Technologies | $1.39 |
Bed Bath & Beyond (BBBY)
For those not familiar with the tricks that companies deploy, Bed Bath & Beyond (NASDAQ:BBBY) might sound like a contrarian buy, not one of the stocks to sell. Recently, Reuters reported that the company announced a reverse stock split plan. While this might raise the share price on paper, at this point, it’s a last-ditch desperate attempt to stay afloat.
Unfortunately, over the long run, I don’t see how BBBY could be anything other than one of the stocks to sell. On the balance sheet, the retailer’s cash-to-debt ratio sits at 0.04 times, worse than 92.2% of the competition. Operationally, the company’s three-year revenue growth rate sits at 4% below parity. Also, its book growth rate during the same period is 52.1% below zero. If you want to talk profitability, it’s the same red ink. Operating margins sit at 15% below breakeven. Net margin is 20.54% below zero. Finally, Wall Street analysts peg BBBY as a unanimous strong sell. Their average price target sits at $1.03, implying 0% upside.
Virgin Galactic (SPCE)
As one of the early direct players in the burgeoning, ultra-high potential space economy, Virgin Galactic (NYSE:SPCE) carried much hope. Unfortunately, hope doesn’t generate revenue or provide earnings. Unsurprisingly, given the enterprise’s wild volatility, investors started to lose interest. While shares did gain 19% of equity value in the year so far, in the trailing year, they’re down 56%.
Financially, Virgin Galactic suffers from myriad flaws. On the balance sheet, its debt-to-EBITDA ratio comes in at 0.88 times below breakeven. Per Gurufocus.com, this ranks worse than every other company in the aerospace and defense industry – no joke. Also, its Altman Z-Score is 1.37 below zero, indicating deep distress.
Operationally, the company suffers from a three-year revenue growth rate of 22% below parity. On the bottom line, its operating and net margins sunk ridiculously into the abyss. From almost every metric, SPCE rates as one of the stocks to sell. Lastly, covering analysts peg SPCE as a consensus moderate sell. Their average price target sits at $3.39, implying 5.53% downside risk.
Redfin (RDFN)
With full-service real estate brokerage Redfin (NASDAQ:RDFN), it’s not so much about how vulnerable the company is. Rather, the real estate industry may be facing a reckoning. If the Federal Reserve decides to continue raising the benchmark interest rate, Redfin may be in trouble. Naturally, borrowing costs will rise, exacerbating the affordability crisis. Also, the Fed might break something, leading to steep economic consequences.
Even a rate reduction may hurt the overall economy because soaring prices would also hurt affordability. Tack on Redfin’s terrible financial profile and it makes for one of the stocks to sell. Notably, the company’s Altman Z-Score comes in at 0.91, indicating a distressed enterprise.
Operationally, RDFN may have a 35.5% three-year revenue growth rate. However, as headwinds rise, this metric will almost surely plummet. Plus, its other stats such as EBITDA and book growth during the same period slipped sharply into negative territory. In closing, analysts peg RDFN as a consensus hold. However, their average price target of $7.51 implies nearly 9% downside risk.
Rocket Companies (RKT)
Again, as with Redfin above, the narrative of Rocket Companies (NYSE:RKT) as one of the stocks to sell doesn’t just center on its financial vulnerabilities. Instead, the real estate market and adjacent services such as mortgage lending suffer from a business cycle’s wrong end. With interest rates perhaps likely to continue rising higher, the ability to lend money will be diminished. After all, few want to borrow when borrowing costs rise.
Inherently, this dynamic puts Rocket’s mortgage business in peril. Financially, it’s a messy situation. For example, the company’s cash-to-debt ratio sits at 0.12 times. This metric ranks worse than 92.13% of the competition. Operationally, Rocket’s three-year revenue growth rate fell to 61% below parity. Also, its book growth rate during the same period is 48.7% below zero. Right now, the lender’s net margin pings at 0.82%. Worryingly, this stat ranks worse than 96% of its peers. Turning to Wall Street, analysts peg RKT as a consensus hold. However, their average price target now sits at $7.65, implying nearly 12% downside risk.
Nabriva (NBRV)
Based in Dublin, Ireland, Nabriva (NASDAQ:NBRV) is a commercial-stage biopharmaceutical company engaged in the development of innovative anti-infective agents to treat serious infections. While it sounds compelling, NBRV failed to sustain investors’ interest. Since the Jan. opener, NBRV stock gave up 21.5% of its equity value. In the trailing year, it’s down almost 86%.
Right off the bat, investment resource Gurufocus warns its readers that Nabriva may be a possible value trap. On the balance sheet, arguably the most worrying stat centers on its Altman Z-Score. Coming in at 19.91 below zero, NBRV represents a horrifically distressed business. As well, it’s at risk of bankruptcy within the next two years.
Operationally, Nabriva’s three-year revenue growth rate sits at 21.2% below breakeven. Its book growth rate during the same period is 54.9% below parity. Of course, its net margin also fell deeply into the crimson abyss. To no one’s shock, Northland Securities’ Carl Bymes pegs NBRV as one of the stocks to sell. The analyst pegs a price target of $1, implying more than 36% downside risk.
Ibio (IBIO)
Early during the coronavirus pandemic, biotechnology firm Ibio (NYSEAMERICAN:IBIO) generated considerable interest in potentially providing a solution to Covid-19. At one point, IBIO shares traded in triple-digit territory. Nowadays, circumstances cooled off significantly. At the time of writing, IBIO trades at just under $2. Unfortunately, circumstances suggest that it may have much more to fall.
It’s not just about the terrible market loss, though it did hemorrhage 82% in the trailing year. Rather, the financials give little reason for confidence. For example, Ibio’s cash-to-debt ratio sits at 0.47 times. This stat ranks worse than 89% of its competitors. Also, its debt-to-equity ratio is 1.08, worse than 91% of sector peers.
Operationally, Ibio’s three-year EBITDA growth rate comes in at 91.4% below parity. Also, its operating and net margins have completely fallen off the rails. Gurufocus calls IBIO a possible value trap, which may be an understatement. Lastly, covering analysts peg IBIO as a consensus hold. Their average price target pings at 50 cents, indicating over 74% downside risk. In other words, it’s probably one of the stocks to sell.
Shift Technologies (SFT)
Headquartered in San Francisco, California, Shift Technologies (NASDAQ:SFT) maintains an online marketplace for buying and selling used cars. While this arena may have generated plenty of attention during the worst of the Covid-19 crisis (when people didn’t want to use public transportation), that ship sailed. To be fair, cars need to be frequently replaced at scale. However, customers will probably seek the lowest-cost options at this juncture.
Sadly, this framework leaves Shift struggling for traction. It’s difficult to see where recovery may stem from. For instance, its balance sheet is terrible. Its equity-to-asset ratio sits at 0.51 times below zero, ranked worse than nearly 99% of the competition. Also, its Altman Z-Score comes in at 4.18 below parity, indicating a heavily distressed business.
On the bottom line, its operating and net margins sit 26.12% and 29.89% below breakeven, respectively. Unless something drastic changes in the consumer economy, SFT is in trouble. Therefore, it’s one of the stocks to sell. Finally, Wall Street analysts peg SFT as a consensus hold. However, their price target is 24 cents, indicating more than 82% downside risk.
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.