While not the most comfortable topic to discuss, with the fifth month of the year upon us, it’s time to discuss stocks to sell in May. If you’ve been around the market for a while, you probably heard the phrase, “Sell in May and Go Away.” It refers to the underlying month being a historically weak period. And as Barron’s pointed out recently, this adage may be especially appropriate right now.
To make a long story short, the economy has gone through the flames of perdition. With another U.S. regional bank failing, it’s difficult to predict how the equities market will respond to additional impacts or deliberate modulations. Plus, with the bullish energy appearing to wane, it might be time to consider jettisoning the worst stocks in May. Of course, you should conduct your own due diligence before proceeding. Nevertheless, these are some ideas for stocks to avoid in May.
|AEO||American Eagle Outfitters||$12.94|
Lordstown Motors (RIDE)
Recently, shares of electric vehicle manufacturer Lordstown Motors (NASDAQ:RIDE) fell to a new low of 25 cents before rebounding to 40 cents. Nevertheless, on the May 1 session, RIDE hemorrhaged over 23% of its equity value. For the year so far, it’s down almost 65%, a shocking performance. Given that the company dangerously flirts with bankruptcy, RIDE ranks among the stocks to sell.
Basically, Hon Hai Precision Industry (OTCMKTS:HNHPF) – which does business as Foxconn Technology – threatened to pull out of a funding agreement with Lordstown, citing a breach of contract. The breach centered on RIDE stock falling far too long below the $1 per share threshold, thus risking a delisting procedure from the Nasdaq exchange. Frankly, it’s just one more headache that the company doesn’t need. Even without this pressure point, Lordstown would have to contend with an EV-sector price war.
Unsurprisingly, Wall Street analysts peg RIDE as a moderate sell. Therefore, it’s one of the crashing stocks in May to sidestep.
Specializing in what it calls the Fun Utility Vehicle, Arcimoto (NASDAQ:FUV) manufactures tandem two-seat, three-wheeled EVs. While I’m sure they deliver bang for the buck in terms of amusement, these vehicles tend to be rich folks’ toys. Unfortunately, not too many households can afford such luxuries. I mean, if people are going to make the transition to electric mobility, they’ll do so with fully functional vehicles.
On a fundamental note, then, FUV suffers from a relevancy headwind, making it one of the stocks to sell in May. However, it’s not completely terrible on a purely financial level. For example, Arcimoto carries zero debt, which on paper affords the enterprise incredible flexibility. On the other hand, its Altman Z-Score sits at 3.06 below zero, indicating severe distress and high bankruptcy risk.
Additionally, EBITDA and free cash flow growth rate during the last three years sit well into negative territory. Also, its operating and net margins hopelessly drown in red ink. Recently, only one analyst covers FUV, pegging it a hold. Bluntly speaking, it’s one of the worst stocks in May.
As a woman-owned public enterprise, Bumble (NASDAQ:BMBL) captured plenty of attention during the run-up to its initial public offering. In addition, Bumble distinguished itself from other social apps by inviting women to make the first move. Bumble CEO Whitney Wolfe Herd mentioned that this process gives women parity of power in relationships. Socially, it’s a great idea. Unfortunately, BMBL is one of the stocks to sell in May.
I’m not here to trash the core impetus behind Bumble’s distinctive profile. However, the platform pigeonholes itself by forcing all women to perform the same function: reach out to men (in traditionally oriented relationships) first. But perhaps, not every female user wants to do that. Maybe they prefer the man to make the first move. Also, this process tests the patience of gentlemen users.
Presently, Bumble’s biggest challenge appears to center on profitability woes. Both its trailing-year operating and net margins sit in negative territory despite strong revenue growth. Also, it’s one of the most overvalued stocks in May, featuring forward price-earnings (PE) ratio of 75.56 times.
PacWest Bancorp (PACW)
With First Republic Bank (NYSE:FRC) failing, fears of financial sector stability may rise again. It’s possible that the next target of suspicion may be PacWest Bancorp (NASDAQ:PACW). Following news on Monday that regulators took over First Republic, PACW shares fell almost 11%. Since the start of this year, they’re down an incredibly worrying 60%. Just to be on the safe side, PACW may be one of the stocks to sell in May.
Outside of any other context, PACW seems enticing. After all, PACW trades at a forward multiple of 2.7, ranked better than nearly 94% of its peers. However, investment resource Gurufocus warns that PacWest may be a possible value trap. In particular, its trailing-year net margin fell to 70.84% below breakeven, worse than 99% of other banks.
Also, its financial resilience looks shaky, especially with an equity-to-asset ratio of 0.06, ranked worse than over 80% of the competition. While analysts peg PACW as a moderate buy, it might be one of the worst stocks in May.
American Eagle Outfitters (AEO)
Once a popular fashion destination for young consumers, trends, and circumstances have changed significantly. Therefore, American Eagle Outfitters (NYSE:AEO) may soon find itself among the worst stocks in May. Since the Jan. opener, AEO fell almost 9%. In the past 365 days, it gave up more than 15% of its equity value. Though not the greatest loss ever, the brand suffers from a relevancy problem.
These days, young folks no longer care that deeply about corporate branding and the feelings of supremacy they engender. If anything, they seek the opposite. Marketing analysts note that Generation Z cares about the environment, along with equality and diversity. Therefore, buying a brand for rich people runs counter to the broader ethos of young Americans.
To be sure, American Eagle brings some decent financial metrics to the table. However, both its revenue and EBITDA growth over the past three years sit in negative territory. Overall, analysts peg AEO as a consensus hold. Without a real catalyst to move the narrative forward, AEO could be one of the stocks to sell in May.
Qurate Retail (QRTEA)
An American media conglomerate, Qurate Retail (NASDAQ:QRTEA) owns and operates seven leading retail brands in the U.S. and abroad. These include QVC, HSN, and Zulily among others. Per its website, Qurate through its subsidiaries provides 22 million customers with an alternative mechanism to shop via television programs, streaming services, social media platforms, and mobile applications.
While Qurate may have been relevant prior to the current digital-everything age, QRTEA could have been one of the securities to buy. Instead, it’s very much one of the stocks to avoid in May. Fundamentally, Qurate suffers from a relevancy dilemma. Since the beginning of this year, QRTEA fell more than 52%. In the trailing one-year period, it’s down more than 82%.
Financially, Qurate’s Altman Z-Score of 0.64 indicates a distressed business and higher-than-average bankruptcy risk. Unsurprisingly, its revenue growth rate slipped into negative territory, as did its net margin. Lastly, analysts peg QRTEA as a consensus moderate sell. That says it all.
An American broadcasting company, Audacy (NYSE:AUD) is the second largest radio company in the U.S., per its corporate profile. It owns 235 radio stations across 48 media markets. While seemingly relevant, Audacy’s financials warrant heavy concern. And even the relevancy angle may be deceptive. After all, AUD fell nearly 59% since the Jan. opener. In the trailing year, it’s down 96%.
You don’t need to be a certified financial analyst to recognize that AUD may be one of the stocks to sell in May. However, if you wanted to dig a little deeper, Audacy’s cash-to-debt ratio sits at 0.05, worse than 91.52% of companies in the diversified media space. Also, its Altman Z-Score sits at 0.1 below zero, indicating distress. Unsurprisingly, Audacy also suffers from a three-year revenue growth rate of 6% below parity. As well, its net margin sits at 11.22% below breakeven. In the past three months, no one covers AUD. I’m not sure what the analysts would say since it’s one of the worst stocks in May.
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.