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14 Stocks to Sell or Stay Away From

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23.07.2020

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Seasoned investors know that generating superior returns isn't just about putting the right equities into your portfolio. It's also about identifying stocks to sell – whether it's to lock in gains or limit losses – and knowing what companies you should avoid.

Knowing what to bail on right now isn't so clear-cut. Much of the stock market has recovered from the COVID-related crash, with many equities trading close to or even above their pre-pandemic levels. The market hardly feels normal, but it at least feels more normal than it was.

However, not every stock has regained its footing. Some companies that were being buffered by headwinds before the pandemic hit are in even worse shape now due to eroding sales and profits and overstretched balance sheets. Investors who have held on hoping for a similar recovery in shares such as these, or investors looking for dips they can still buy, might want to consider putting their funds elsewhere.

And in a few cases, some stocks have perhaps advanced too far too fast, making additional upside much more difficult to come by.

Here are 14 stocks to sell or stay away from right now. Note that none of these companies seem like they're destined for the bankruptcy pile, and even small positive changes in fortune could lead to short-term rips in these stocks. However, most face a significantly difficult path for at least the next year, and many in the analyst community are predicting little upside if not considerable additional downside ahead.

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Groupon (GRPN, $16.21) created a business serving as the middleman between consumers and merchants, offering deep discounts on goods and services via its online store. The markets that Groupon serves have been hit hard by the pandemic; much of the company's business consisted of tourists seeking discounts on tours and local attractions, and this segment of its business has all but dried up.

But what should make investors wary is that GRPN was also struggling well before COVID-19 existed. Groupon has delivered 13 consecutive quarters of year-over-year revenue declines and net losses in five of the past six quarters.

Groupon hoped to improve earnings by shedding the low-margin goods business (by the end of 2020) to focus instead on local experiences, but unit sales in this segment have been decimated by the COVID-19 shutdown. Overall, GRPN revenues fell 35% during the March quarter, and the company recorded an adjusted net loss of $1.63 per share.

More reasons for concern: Groupon removed CEO Rich Williams and COO Steve Krenzer from their roles in March, and the company executed a 1-for-20 reverse stock split in June to get its shares back above $1, which is the minimum level required to remain listed on the Nasdaq. (Without that split, GRPN shares would be trading for about 80 cents right now.)

Wall Street's analysts are fairly cold on Groupon, too. While five have a Buy rating on GRPN, eight call it a Hold, and another five put it among their stocks to sell right now. Worse still: The consensus estimate is for 18% annual earnings declines over the next five years.

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Harley-Davidson (HOG, $28.00) is the dominant player in large motorcycles. However, despite its iconic brand, the company has been challenged by years of steady decline in the industry. Analysts blame the industry's aging current customer base coupled with a lack of fresh interest from younger consumers.

According to Jalopnik's Erik Shilling, the pandemic is shifting Harley Davidson's plight from precarious to desperate. Purchases of expensive, high-end motorcycles typically fall when the job market weakens.

The company has posted declines in U.S. revenues for 13 consecutive quarters, and five straight years, according to S&P Capital IQ data.

In an April note to investors, Moody's writes, "Principal liquidity sources include approximately $0.8 billion in cash and securities, and $1.8 billion in committed credit facilities. This $2.6 billion in sources marginally cover the $2.3 billion of debt that matures during the coming twelve months at (Harley Davidson Financial Services)." Moody's also downgraded Harley's debt from Baa1 to Baa2, putting it just two notches away from junk status. Later in the month, HOG cut its dividend by nearly 95% to 2 cents per share.

More recently, Harley-Davidson announced a restructuring that will eliminate roughly 700 jobs and produce $42 million of restructuring charges in the June quarter.

Wedbush Securities analyst James Hardiman, who has a Neutral rating on HOG stock, wrote in June that "While we believe that a worldwide pandemic and a new management team have given the company the cover to make some much-needed structural changes, the underlying secular challenges remain." UBS analyst Robin Farley (Neutral) expects the company's inventory cuts to its dealer network to reduce 2020 earnings per share (EPS) by 15% to 27%.

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Ruth's Hospitality Group (RUTH, $6.73) has been among the worst performers in the hurting restaurant industry. The company, which is the largest U.S. fine-dining steakhouse chain, operates more than 150 Ruth's Chris Steak House locations worldwide.

The pandemic shutdown caused its restaurant sales to plummet, but Ruth's was already facing headwinds from America's waning appetite for red meat. Nearly one in four Americans report eating less meat, and meat-eaters are shifting away from beef in favor of lighter fare such as chicken.

Ruth's comparable-restaurant sales fell 14% during the March quarter, overall sales dropped 9% and the company recorded a 13-cent-per-share net loss versus a 47-cent profit the year earlier. The March quarter might be just the tip of the COVID-19 iceberg for the steakhouse chain. Ruth's acknowledged comparable-restaurant sales plunged a staggering 84% in April among the 56 of 86 company-owned restaurants that remained open. (RUTH didn't break out franchisee-owned stores but said they're experiencing "disruptions to their business.")

The restaurant chain's main sources of income are business lunch/dinners and tourists. These segments might have a difficult time recovering soon given travel restrictions and work-from-home trends. In addition, fine-dining establishments often are the last restaurant group to recover when the economy tanks.

Ruth's plans for surviving the pandemic revolve around halting construction of new restaurants, suspending dividends and share repurchases and seeking rent breaks and waivers on financial debt covenants. Ruth's also recently issued $43.5 million of new stock, thus diluting existing shareholders. The proceeds from equity sales will be used to repay borrowings and shore up its balance sheet.

Ruth's doesn't have much of........

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