Stocks to sell

While focusing on equities with upside potential tends to be the superior long-term option due to the U.S. capital market’s upward bias, good investors can’t avoid the topic of stocks to sell. Invariably, in this investing game, you’re going to pick a few clunkers – we all do. What separates successful players from those who consistently struggle often comes down to hard decision-making.

Essentially, the concept of stocks to sell ranks similar to judging a talent show: some folks are talented, and most are not. And you just have to deliver the bad news rather than leading deluded hopefuls on. To add some objectivity to this unpleasant exercise, each of the names below incurred consensus analyst sell ratings. So, see if you need to do some spring cleaning.

BBBY Bed Bath & Beyond $0.31
LUMN Lumen Technologies $2.57
PFG Principal Financial Group $75.56
BEN Franklin Resources $27.16
EXPD Expeditors International $109.06
PNW Pinnacle West $80.05
CLX Clorox $159.11

Bed Bath & Beyond (BBBY)

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A once-popular household goods retailer, Bed Bath & Beyond (NASDAQ:BBBY) may be delaying its inevitable demise. In the five sessions ending April 6, BBBY stock suffered a steep loss of more than 43%. And that’s despite the fact that the company secured a $120 million merchandising lifeline. Basically, investors realize that the enterprise sits on borrowed time.

Despite the deal with ReStore Capital, the fundamental problem for BBBY stock centers on trust (or lack thereof). Unlike its well-capitalized competitors, Bed Bath & Beyond needs to put up cash to buy the inventory to stock its shelves. Otherwise, if the retailer goes under, the product suppliers would become unsecured creditors. However, the company’s balance sheet is simply awful. Unfortunately, management must concede to dilutive deals one after the other. Eventually, investors will lose hope.

Tellingly, Wall Street analysts peg BBBY as a unanimous strong sell. Ignore the triple-digit price forecast as it’s merely residue from abandoned analyst targets. Instead, BBBY clearly ranks among the stocks to sell.

Lumen Technologies (LUMN)

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An American telecommunications company, Lumen Technologies (NYSE:LUMN) offers communications, network services, security, cloud solutions, voice and managed services. Per its public profile, the company also serves global enterprise customers across North America, Latin America, EMEA, and Asia Pacific. While relevant, it’s struggled for traction.

Fundamentally, Lumen will lose its spot on the S&P 500 index. As well, the possibility of the Federal Reserve raising interest rates amid higher crude oil prices negatively affected investor sentiment. Financially, circumstances don’t look particularly auspicious for Lumen. For example, investment resource Gurufocus labels the enterprise a possible value trap.

Specifically, the company’s Altman Z-Score sits at 0.23, indicating deep distress and thus, a high risk of bankruptcy. Also, its three-year revenue growth rate comes in at 4.7% below breakeven. Not surprisingly, it also posts negative net margins. Naturally, analysts peg LUMN as a moderate sell. While their average price target of $3.81 implies nearly 57% upside, you can ignore it. Instead, LUMN ranks among the stocks to sell.

Principal Financial Group (PFG)

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A global financial investment management and insurance firm, Principal Financial Group (NASDAQ:PFG) on paper offers myriad relevancies. However, the recent U.S. regional bank failures imposed many questions about the viability of the economy. Combined with other ongoing concerns such as the Fed’s monetary policy, PFG struggled this year. Since the January opener, shares dropped more than 12% in equity value.

Financially, the company could use some work on its balance sheet. Notably, Principal’s equity-to-asset ratio sits at 0.03 times. However, the sector median value stands at 0.83 times. Therefore, Principal ranks worse than 97.68% of its peers. Operationally, the company features a modest three-year revenue growth rate of 5.9%. However, its free cash flow growth rate during the aforementioned period sits at 14.4% below parity. Therefore, PFG makes a “strong” case for stocks to sell. Finally, analysts peg PFG as a consensus moderate sell. The lowest price target is $58, implying 21% downside risk.

Franklin Resources (BEN)

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With the troubles that the regional banks – and even international finance giants – courted following the much-covered bank runs, it’s no surprise that Franklin Resources (NYSE:BEN) struggled for traction recently. Sure, since the Jan. opener, BEN stock lost only 2%. However, in the trailing month, it’s down more than 4%, possibly suggesting the beginning of a negative trend.

Financially, more investors may be taking a closer look at its stability. Right now, the company’s equity-to-asset ratio is 0.4 times. Again, the median value for the asset management industry is 0.83 times. Also, Franklin’s debt-to-equity stands at 0.86 times. Here, the sector median comes in much lower at 0.23 times. To be fair, Franklin’s three-year revenue growth rate of 14.6% beats out 65.9% of the competition.

Nevertheless, investors are taking an extremely cautious approach to the financial sector. Lastly, analysts peg BEN as a consensus moderate sell. Their average price target sits at $25.56, implying nearly 4% downside risk. Thus, it’s one of the stocks to sell.

Expeditors International (EXPD)

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Headquartered in Seattle, Washington, Expeditors International (NASDAQ:EXPD) is a worldwide logistics and freight forwarding company. Though carrying a significantly relevant profile, Expeditors’ problem centers on broader economic stability concerns. Further, fierce competition may play a more impactful role moving forward. Since the January opener, EXPD gained less than half a percent.

As with the other stocks to sell on this list, analysts take a dim view overall on Expeditors. To be fair, the company so far prints decent financials. For example, it has a cash-to-debt ratio of 3.92, beating out 85.41% of its rivals. Also, its Altman Z-Score of 9.45 indicates a very low risk of bankruptcy.

However, EXPD appears overvalued, especially against projected earnings. Also, EXPD trades at 5.23 times book value, ranked worse than nearly 92% of sector players. While it might not be on my personal sell list, analysts peg EXPD as a consensus moderate sell. Their average price target sits at $94.67, implying over 10% downside risk.

Pinnacle West Capital (PNW)

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Another enterprise that caught analysts’ ire, Pinnacle West Capital (NYSE:PNW) is a utility holding company that owns Arizona Public Service and Bright Canyon Energy. Generally speaking, I don’t mention utilities as stocks to sell because of their natural monopoly. Basically, the barrier to entry is so steep that would-be competitors give up before they even try. Sure enough, PNW gained almost 8% since the beginning of this year.

Also, Pinnacle West’s financials don’t seem terrible, especially when stacked against other utility plays. To be sure, its balance sheet could use some work. Its Altman Z-Score pings at 0.85, indicating distress and a higher risk for bankruptcy. As well, the company’s FCF growth rate pings at 25.4% below breakeven.

Further, Pinnacle doesn’t seem the greatest deal on paper. For instance, it seems noticeably overvalued against projected earnings. However, most analysts don’t like it. Among eight experts, three rate it a hold, and four rate it a sell. Additionally, the average price target is $71.88, implying 10.5% downside risk.

Clorox (CLX)

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To be honest, I was shocked when I found out that Wall Street considers Clorox (NYSE:CLX) to be one of the stocks to sell. As a relevant consumer goods giant, Clorox theoretically brings value to those seeking a safe place to park their funds. At the same time, I can understand why the experts don’t like it. Fundamentally, with fading fears of the Covid-19 crisis, Clorox lost its cynical upside catalyst.

Regarding its financials, Clorox doesn’t feature the worst profile I’ve seen. However, investors might be questioning its balance sheet. For example, the company’s cash-to-debt ratio sits at 0.05 times, ranked worse than 87.71% of its competitors. Also, its equity-to-asset ratio is also 0.05 times, worse than 93.8% of sector players.

Notably, both its EBITDA and FCF growth rate over the past three years have been sitting in negative territory. Also, the market prices CLX at a forward multiple of 29.24 times. That’s way overvalued compared to the rest of the industry (a median of 17.29 times). Finally, covering analysts peg CLX as a consensus moderate sell. Their price target sits at $139.11, implying nearly 12% 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.

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.

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