After leading the market higher coming out of the 2022 bear market, technology stocks have hit a rough patch. Sentiment towards the mega-cap tech companies has also shifted, as it now looks like interest rates will remain higher for longer.
At the same time, geopolitical instability and spiking bond yields have zapped investors’ risk appetite. Throw in hit-and-miss earnings reports and shifting consumer habits, and you have the makings of a downturn.
In the last month, the tech-laden Nasdaq Composite Index has fallen 5%, with much of that decline coming since April 11. Some tech stocks have been hit worse than others, as signs emerge that their business may be slowing or the outlook for the remainder of the year has changed.
Wall Street appears to be bracing for more downside ahead, with some analysts calling for a full-blown 10% market correction. In this rapidly evolving environment, investors should reposition their portfolio and batten down the hatches.
Here are three tech stocks to sell now before the next market downturn hits.
Cadence Design Systems (CDNS)
The stock of Cadence Design Systems (NASDAQ:CDNS) fell after the maker of semiconductor-design software issued forward guidance that fell short of Wall Street forecasts. Disappointing guidance is starting to become a theme at Cadence Design, which did the same thing in January of this year, sending its share price lower. CDNS stock is now up about 6% on the year, lagging the performance of many other semiconductor stocks.
The weak guidance is particularly frustrating, given that Cadence Design Systems consistently beats Wall Street expectations in its quarterly earnings. The company reported first quarter 2024 earnings per share of $1.17, which was better than the $1.13 expected among analysts. Revenue in Q1 totaled $1 billion, which was inline with forecasts. Cadence Design also said that it ended Q1 with a record backlog of $6 billion in orders.
Despite the earnings beat and record orders, management once again provided guidance below analysts’ expectations. The company now projects revenue of $1.03 billion to $1.05 billion for the current second quarter, with earnings of $1.20 to $1.24 per share. Analysts had been looking for Q2 revenue of $1.10 billion and $1.43 a share in earnings. The weak outlook makes Cadence Design Systems a tech stock to sell.
Netflix (NFLX)
Don’t mess with the subscriber numbers. That was the takeaway from the Q1 print of Netflix (NASDAQ:NFLX). The streaming giant’s stock fell 10% after management announced that they will no longer report quarterly membership numbers and average revenue per membership.
Moreover, the leadership team said they are stopping the reporting of subscriber numbers, as they want investors to focus instead on metrics such as revenue, operating margins and free cash flow. That news did not go over well with investors.
More than a few analysts said the move is a red flag and a sign that subscriber growth is slowing at the world’s largest movie and TV streaming platform. Subscriber numbers have always been a way for analysts and investors to compare Netflix and its growth to competing streaming services, such as those offered by Walt Disney Co. (NYSE:DIS).
News that the reporting of subscribers will be ending at Netflix completely overshadowed what was otherwise a strong Q1 print from the company.
While NFLX stock is still up about 26% on the year, any signs of slowing subscriber growth are likely to be problematic for the company and its share price moving forward. As such, Netflix looks like a tech stock to sell before the next market downturn hits.
Apple (AAPL)
Of course, there are still reasons to like Apple (NASDAQ:AAPL), and the long-term outlook for the stock remains largely positive. But in the near-term, things are getting messy.
Each piece of news related to the consumer electronics company seems to be worse than the last. Case in point: Apple’s iPhone sales in China fell 19% during this year’s first quarter, according to data from Counterpoint Research. Another recent report claimed that Q1 iPhone sales in China declined 9.6%.
At the same time, media reports note that Apple’s senior executives have been selling millions of dollars worth of company stock ahead of the upcoming May 2 Q1 earnings.
Apple CEO Tim Cook has sold $33.3 million of Apple stock in April. While Apple has said that the stock sales were prearranged, seeing the executive team dump AAPL stock right before earnings as iPhone sales plunge is a bad look. It also puts more of a spotlight on Apple’s upcoming print, which is shaping up to be a make or break moment for the stock.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.