Not too long ago, many pundits noted that the rising equities sector represented “the most hated bull market.” Following the devastation of the novel coronavirus, this could be the most loved bear market. While the pandemic delivered a gut punch to the labor force, Wall Street seems to be taking this in stride. After all, the Nasdaq is in positive territory for the year. Nevertheless, we can’t ignore that many companies find themselves on a bankruptcy watch and are becoming stocks to sell.
Furthermore, I wouldn’t let the relative strength of the markets fool you. When over 36 million people file for unemployment benefits over a two-month period, you know you have severe problems. And that’s not just my opinion. In a joint appearance, Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell gave stark warnings about the days ahead should we not take bold measures now. Sadly, this environment necessitates taking a closer look at stocks to sell.
In an email to InvestorPlace, Brad Gold, lecturer in the Business, Government and Society department of University of Texas at Austin, noted:
Many market sectors look red at a high level. Many quarterly charts also look a wild ride. From far away it would be hard to identify any business or sector that would be immune from danger. Particular danger may be lurking in travel and entertainment related businesses that were hit hard and early in this crisis, and continue to face extended closures.
Naturally, many stocks to sell can be found in these discretionary industries. However, the coronavirus doesn’t discriminate, leaving very few markets untouched. Here are ten companies that are teetering close to the edge.
- Tethys Petroleum (OTCMKTS:TETHF)
- Willow Biosciences (OTCMKTS:CANSF)
- Santacruz Silver Mining (OTCMKTS:SZSMF)
- Baytex Energy (NYSE:BTE)
- Arcimoto (NASDAQ:FUV)
- Global Eagle Entertainment (NASDAQ:ENT)
- Support.com (NASDAQ:SPRT)
- Broadwind (NASDAQ:BWEN)
- Chico’s FAS (NYSE:CHS)
- Blue Apron (NYSE:APRN)
This isn’t to suggest that you should short these stocks to sell, which has its own set of risks. Rather, you want to be careful exposing yourself to unnecessarily dangerous names. In a downturn, cash is king, and you certainly don’t want to burn it if you don’t have to.
Tethys Petroleum (TETHF)
According to the Altman-Z score, a model designed to calculate the probability of a company going bankrupt, Tethys Petroleum is one of the most embattled organizations in the markets. Add in its oil and gas exploration business that’s concentrated in central Asia (mostly Kazakhstan) and TETHF stock wouldn’t appeal to hardly anyone.
Even if you were a contrarian, I just don’t see the upside potential here. Yes, one day the global economy will recover. But that might take longer than you think. During the road to recovery, it’s highly likely that the oil industry will give up several of its weakest members. That would mean TETHF stock.
While shares have surged higher recently on demand hopes, I would still be skeptical. Until automotive and airliner traffic return to at least two-thirds of their pre-pandemic levels, Tethys belongs on a list of stocks to sell.
Willow Biosciences (CANSF)
On the surface, Willow Biosciences is technically a biotechnology firm. Upon further investigation, I perceive it as a fancy cannabidiol (CBD) products provider. Admittedly, this is an oversimplification of Willow’s business, where they are researching CBD to address various conditions and ailments.
I wish them all the luck because they’re going to need it. While I’m usually supportive of the CBD space, CANSF stock is very much a beleaguered investment. So far, the company doesn’t generate any revenue, which means that it’s hoping for a breakthrough.
However, the scientific community is currently devoted to addressing Covid-19. As well, federal authorities have been reluctant to support any health claims linked to CBD. Thus, from both a business and timing perspective, I believe investors should steer clear of CANSF stock.
Santacruz Silver Mining (SZSMF)
Usually, speculative mining companies draw much skepticism. However, the narrative for Santacruz Silver Mining improved dramatically because of the coronavirus. Suddenly, precious metals like silver have suddenly shot up due to safe-haven demand. Yet SZSMF stock looks rather unconvincing.
As it stands, the mining complex isn’t always aligned with their underlying assets’ fundamentals. While physical silver obviously doesn’t have shareholders to please, Santacruz does. And they’re not overjoyed with years of net income losses, along with a weak cash position relative to debt.
Among the stocks to sell on this list, there is a chance that SZSMF stock jumps dramatically higher based on the fear trade. But more likely than not, it would be a sympathy trade which wouldn’t have anything to do with Santacruz.
Frankly, there are far better options for your money.
Baytex Energy (BTE)
Prior to the pandemic, Baytex Energy was already a candidate for stocks to sell. At the beginning of the year, BTE stock closed at $1.45. That would put it at risk of delisting by the New York Stock Exchange. At time of writing, shares dropped to 30 cents, which means the pressure has only amplified.
As I mentioned with Tethys, renewed optimism for oil prices has recently buoyed the sector, including BTE stock. But I doubt that it’s enough to sustain a vulnerable company like Baytex over the next several months. The magnitude of the damage done to the global economy, combined with lingering fears of Covid-19 will take time to heal.
Unfortunately, time isn’t a luxury that Baytex has. And if the coronavirus strikes again later this year, it might be lights out for BTE stock.
Arcimoto (FUV)
If Wall Street gave awards to companies with good intentions, Acrimoto would have to make room for its silverware. Founded in 2007 as a platform to help people transition to a sustainable transportation system, Acrimoto came to fame with its small and quirky electric vehicles. Combining chic styling, long city-driving range and relatively low cost, FUV stock should be a winner.
Instead, it finds itself on my list of stocks to sell. Mainly, the issue I see with Acrimoto is consumer demand in that I don’t think it exists. When you think about small, quirky EVs, you immediately conjure up the Smart Car. But the Smart Car ceased operations in the U.S., which doesn’t bode well for FUV stock.
You can find further confirmation in Acrimoto’s financials. Along with a poor Altman-Z score, Acrimoto has a lot of inventory and terrible sales … color me surprised.
Global Eagle Entertainment (ENT)
If there’s any one company that desperately needs an economic recovery, that would be Global Eagle Entertainment. Essentially, a digital media solutions company, ENT stock wouldn’t necessarily strike you as a bankruptcy risk. However, the company is perhaps best known for providing airliners with their inflight entertainment systems. I think you see where I’m going with this.
As professor Gold mentioned near the top, the travel industry was hit hard. Even as other industries reopen, airliners will find their recovery process more frustrating. That’s because it’s impossible to practice social distancing in an airplane unless airliners are willing to take a huge profitability hit (they’re not).
However, airliners are looking to cut costs and that could mean inflight entertainment. After all, passengers can take their own entertainment with them and many do. Therefore, Global Eagle’s sudden dispensability makes it one of the stocks to sell.
Support.com (SPRT)
At first glance, you would assume that Support.com would do very well in quarantine. As a tech support service covering any device in the connected home, very few other companies have become so relevant. At the same time, very few have been as disappointing as SPRT stock.
Technically, shares are up double digits on a year-to-date basis, so I’m not disappointed about that. Rather, I’m frustrated that SPRT stock has so far refused to live up to its potential. Over the last two years, it’s been on a downward trek. Plus, Support.com continues to forward negative sales growth, which just doesn’t cut it.
You would think that everyone suddenly forced into their homes would give Support.com’s business meaning. So far, that hasn’t panned out. Therefore, I’m putting this into my list of stocks to sell unless the company can start showing us something.
Broadwind (BWEN)
As a precision manufacturer of structures and equipment across critical industries, such as wind, steel, and marine construction, Broadwind could rely on its diversified portfolio to see it through difficult times. However, the coronavirus disrupted virtually every segment of its business, raising questions about BWEN stock.
On paper, shares are doing very well on a YTD basis. But this metric hides the incredible volatility that BWEN stock charted so far in 2020. I believe the tug of war has to do with Broadwind’s perplexing bull-bear debate.
On one hand, the pandemic may exacerbate weaknesses in the company’s balance sheet. But on the other, Broadwind benefits from its exposure to alternative energy solutions. This sector isn’t just about environmental sustainability, but also providing insulation from geopolitical pressures such as oil price wars.
Ultimately, the likely long road to recovery makes me question if Broadwind can hold on until things improve. Therefore, I’m going to relegate this to my list of stocks to sell for the time being.
Chico’s FAS (CHS)
Having read InvestorPlace contributor Will Ashworth’s many articles over the last few years, I’ve come to realize that he has two main loves: American fast food and the Altman-Z score. So, when researching ideas for stocks to sell, I of course reached out to him. In our back-and-forth emails, he mentioned that Chico’s FAS is a distressed retailer.
Like clockwork, Will told me that Chico’s Altman-Z score is 1.87, which is barely above distressed. Further, its EBITDA margin has declined precipitously in recent years. Thus, it’s no surprise that CHS stock is one of the most beleaguered names in the market.
Fundamentally, I don’t think Chico’s focus on women’s clothing and apparel will work in the new normal. When a pandemic has destroyed your revenue stream, the last thing you need is to limit yourself to only half the population. Therefore, CHS stock easily qualifies for a bankruptcy watch.
Blue Apron (APRN)
In the pre-coronavirus paradigm, I can appreciate what Blue Apron has to offer. For instance, millennials prefer experiences over stuff more so than prior generations. And they happen to have finer culinary tastes. But if the pandemic has taught us anything, it’s that we must adapt or die.
Yes, the concept of food deliveries has spiked due to the various stay-at-home orders. But with a deflated economy, most people can’t afford to splurge on regular meal subscriptions. Therefore, I fail to see how APRN stock will rise above this fundamental barrier.
And let’s not forget that Blue Apron isn’t the only competitor in town. Logically, this should lead to a price war which I don’t think Blue Apron can win. And with its declining subscriber base, ARPN stock seems destined to be a flash in the pan.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.