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5 Big-Name Stocks to Sell Now

Ditch these losers now before they kill your portfolio!

If you’re worried about a market top and a deep correction around the corner, there have been a host of headlines lately that should settle your fears.

Second-quarter GDP was already reported to be strong, but recently was revised up to an impressive 4.2% growth rate.

The unemployment rate remains at the lowest levels since late 2008, and jobless claims continue to fall.

The market keeps setting new highs, and the S&P 500 remains around 2,000 as we enter the seasonally strong part of the year after Labor Day.

I am very bullish on the market in general, and confident stocks will keep marching higher … but that doesn’t mean that I think every stock is a strong buy.

It’s always prudent to think about trimming potential underperformers even in a bull market, so right now I would focus on moving out of weaker stocks and into better ones to benefit from the continued rally on Wall Street.

If you have any of these five widely-held stocks in your portfolio, consider selling them and moving into a better stock ASAP:

Twitter (TWTR)

The stunning comeback of Twitter (TWTR) has continued, with shares soaring from a low of around $30 per share in May to $50 per share currently.

But while there may be a bit of short-term momentum left for this big-name stock, I think investors would be wise to take the money and run.

Twitter has zero profits. And while shares have been soaring since Q2 numbers, it’s important to remember that while revenue was up dramatically the profits are still nonexistent. Even more interesting is that TWTR does like to report a paper profit based on unconventional accounting techniques — meaning that it thinks its profitable even if generally accepted accounting practices show it running at a loss.

You always have to be skeptical of that kind of accounting.

User growth is starting to slow down, and while the company is banking big on eventually figuring out how to monetize its audience better with ads, the fact remains that Twitter is facing an uphill battle and is racing against the clock to figure out its money-making model before Wall Street gets skeptical once more.

Remember, TWTR stock is still down about 30% from its January peak … and currently boasts a mammoth forward P/E ratio of 140!

This is a very risky stock, and while it may have short-term upside there is a very real possibility of a swift and dangerous correction. If you’re in Twitter, put it at the top of your stocks to sell list.

Cliffs Natural Resources (CLF)

Though often unfairly labelled a “coal” stock, Cliffs (CLF) is actually an iron company that produces metallurgical coal for its industrial operations — not energy production. Regardless, here’s why CLF should be on your list of stocks to sell:

Iron isn’t a great to be in these days as the price of ore continues to slip and weigh on profitability for major commodity stocks like Cliffs.

CLF stock is down a gut-wrenching 45% year-to-date in 2014, and off more than 80% from its 2011 peak. A combination of weak pricing and weak demand thanks to the global economic slowdown really battered this company, and Cliffs continues to struggle amid a fight to “right-size” for the current environment.

CLF just reported a second-quarter loss and is struggling to fend off activist fund Casablanca Capital in its efforts to oust the chief executive at Cliffs and replace the board.

You could perhaps take a flier on CLF stock and hope that a change in leadership and a rebound in commodity prices could result in outsized returns … but that’s seems quite a foolish bet to make.

There are plenty of other growth opportunities out there that don’t rely on boardroom drama or industrial demand from China’s fading economy.

If you own CLF, my sympathies. But the 4.1% dividend could be cut yet again (dividends were reduced dramatically in 2013), and the outlook for rebound is not rosy.

Cut your losses and move on.

RadioShack (RSH)

RadioShack (RSH) stock has doubled since last week on reports that the company was getting a lifeline of cash to keep the lights on. As Will Ashworth reported, Standard General LP will refinance $250 million in RadioShack debt as a way to backstop its nearly 10% stake in the embattled electronics retailer.

But don’t be fooled. RSH stock may have bought some more time and won another round in its fight to fend off bankruptcy … but this is not a sign of a turnaround. RadioShack remains one of the most obvious stocks to sell.

Sure, RSH still has a modest amount of cash via its $62 million in the bank and access to plenty of credit to keep operating for some time. But just because you can pay creditors and make payroll doesn’t mean you’re operating a good company.

Same-store sales plummeted 14% last quarter — which would be bad enough, but comes on top of revenue in free-fall. In FY2010, RSH stock recorded almost $4.5 billion in sales; this year, RSH will be lucky to clear $3.0 billion.

That’s a 33% slump in the top line.

The problems are obvious: tough competition from e-commerce outlets that offer those hard-to-find electronics components, as well as a lack of a clear retail channel to connect with customers. RadioShack isn’t the first choice for batteries, cell phones or video game systems … and thus can’t provide a meaningful reason why any consumer should enter their strip-mall storefronts.

This company is in big trouble, and even if RSH sees a short-term pop it is a highly speculative and dangerous company to own.

Best Buy (BBY)

Piling on the electronics retailers, Best Buy (BBY) is also a dud of a stock that should have been on your stocks to sell list a long time ago.

Sure, it’s up about 10% in the last month … but remains down 20% YTD after ugly holiday sales proved this big-box giant continues to struggle in the age of Amazon (AMZN) and other e-commerce options.

As Lawrence Meyers noted recently, Best Buy earnings fell off a cliff last quarter, with a 4% decline in revenue and a 2.7% decline in same-store sales. Things have been bad for a while, but seem to only get worse as earnings per share fell a massive 39% and margins fell 340 basis points.

The fundamentals of Best Buy have been nasty for some time, and this earnings report reinforces that.

But most important to investors is the notion that the trajectory seems to be as bad or worse as last year. And given that BBY stock tends to fall hardest right after the holidays, now is the prime time to abandon ship.

Consider these returns:

  • Nov. 1, 2010 to Jan. 31, 2011 – BBY stock lost 19%
  • Nov. 1, 2011 to Jan. 31, 2012 – BBY stock lost 6%
  • Nov. 1, 2012 to Jan. 31, 2013 – BBY stock gained 8% (roughly tracking the market)
  • Nov. 1, 2013 to Jan. 31, 2014 – BBY stock lost 47%

If you want to bet on a big Best Buy holiday showing, be my guest. But a safer choice would be to cash out now after shares have run up from their January lows.

Amazon (AMZN)

Don’t assume that online giant Amazon (AMZN) is all that much better than its brick-and-mortar rivals right now, however. While the company may have no problem with its top line, AMZN has a serious challenge with profitability and with investor sentiment.

So far in 2014, Amazon stock has lost 15% vs. an 8% gain for the S&P 500 … and investors can expect those declines to continue based on recent ill-advised projects that will continue to hold back the bottom line.

I’m talking about the much-hyped Fire Phone and the Fire TV, mainly. Both of these gadgets are sure to see low margins — and based on reports that the Amazon Fire Phone has moved a mere 35,000 units, these items may not even give a substantive revenue boost, either.

What is Amazon thinking?

The issue right now for investors is margins and profits. Yet Amazon has entered into the unprofitable arenas of hardware and (perhaps even more absurdly) the online ads market.

If that wasn’t enough time-wasting complexity for AMZN at a time when it needs to focus on its core business, AMZN stock investors were greeted with news this week that Amazon acquired streaming video provider Twitch for nearly $1 billion. There surely is a better use of time and capital right now than that deal!

When you take the current bearishness about Amazon and layer on these recent misguided moves, it’s clear that sentiment is going to work against AMZN for some time. And given the lack of profits, there seems no compelling reason to risk an investment in Amazon stock right now.