Selling stocks just because of the negative momentum riding behind them is not typically a good idea. However, for the firms that have lost their way, with questionable (and perhaps deteriorating) long-term growth narratives, decaying fundamentals, or other uncertainties that could weigh heavily on one’s longer-term (think three to five years or more) investment thesis, it may be better to cut one’s losses. These stocks to sell are falling knives that you need to avoid before getting stuck.
Indeed, a troubled stock can keep on tumbling for quite some time. This is especially true for those that didn’t sport a reasonable price-to-earnings (P/E) multiple. It is also true for any other valuation metric, for that matter to begin with.
Management reshuffling and other potential “red flags” may also be contributors to why one would part ways with a stock. In this piece, we’ll look at three falling knife stocks that may be worth dumping. Afterall, the long-term story seems just a bit too hazy.
Lululemon (LULU)
Lululemon (NASDAQ:LULU) was the hot apparel play as athleisure and comfort (over style) trended in 2021 and 2023. Nowadays, it seems somewhat less appropriate to look like you just came from the gym in most settings that do not entail athletics. That’s had a devastating impact on LULU stock. The stock finds itself down almost 45% from its all-time high of $511.
Though shares appear like they’re on the discount rack at 19.7 times forward P/E. I fail to see any significant drivers that could reverse recent damage to the stock.
Furthermore, it’s not just about athleisure versus other trends that have me worried. I am also worried about the company’s ability to keep charging high prices in an athletic apparel market. This is because it is saturated with competitors. If Lululemon can’t gain traction at the Paris 2024 Olympics (it’s dressing the Canadian Olympians again), perhaps the nearly 50% haircut may be the start of Lulu’s pains.
Walgreens Boots Alliance (WBA)
Walgreens Boots Alliance (NYSE:WBA) stock just can’t seem to catch a break, with shares recently getting the boot from the Nasdaq 100 for Super Micro Computer (NASDAQ:SMCI). Indeed, getting kicked out of a major exchange for the lack of performance is not a good sign.
At writing, WBA stock has now shed more than 86% of its value from peak levels. It’s sitting at 27-year lows. There may be some deep value. However, the company has some serious issues it needs to address to win back the confidence of investors and Wall Street analysts.
With JPMorgan (NYSE:JPM) recently slashing its WBA stock price target by $10 to $20 per share over “challenging” recent results, it’s tough to find much to get behind the name right here as it closes 300 stores in just a couple of months. You can see how this made our list of stocks to sell.
Chipotle Mexican Grill (CMG)
Chipotle Mexican Grill (NYSE:CMG) is hardly a falling knife compared to Walgreens Boots Alliance. That said, CMG stock has been reversing in a hurry in recent weeks, now down close to 22% from its short-lived June peak. Though I see nothing alarming to rush to the exits over, I do find the valuation to still be rich.
At writing, CMG shares trade at 56.9 times trailing P/E. That’s a huge premium to the quick-serve restaurant industry. It is also one that may not be worth paying even if the company is primed to keep firing on all cylinders. While the company’s long-term growth narrative remains outstanding, I see no reason to pay a premium multiple for it, especially now that momentum has turned so violently.
In short, Chipotle’s a great company, but one that could afford to take an even steeper plunge as investors rotate to value and slightly away from top-tier growth as CMG stock’s massive 50-for-1 split comes into effect. Do yourself a favor and dump all of these stocks to sell.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, Joey Frenette did not hold (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.