Ah, December. That time of year when thoughts turn to … taxes? That’s right, the 2019 tax season will soon be upon us and that means now is the time to take a critical look at your stock portfolio. An effective tax strategy for investors at the end of every year is taking stock of your year and, when necessary, pruning your portfolio. It’s always nice to look at the stocks that have made gains. However, sometimes there are one or two high-flying stocks that you know may have run their course. Do you have the courage to take some profits even if the stock may have room to grow?
On the other side, it’s never pleasant to look back at the stocks that have underperformed, or even posted losses. However, now is the time to take advantage of tax laws and put your investment losses to work for you. By selling off stocks that have posted losses for the year, you not only put more cash on the sidelines to pick up better stocks in the new year, but you also trigger a capital loss, which can be a counterbalance to any capital gains you had as well as up to $3,000 in ordinary income. This tax strategy, known as “harvesting” is particularly useful for high-income taxpayers.
One caveat to this strategy is that investors should not be selling stocks they plan on purchasing again within 30 days. The same tax laws that allow “harvesting” your capital losses also say you can’t take a capital loss if you repurchase the same shares within 30 days of the sale. This means you’re looking for the stocks that are not coming back anytime soon.
In this slideshow, we’ll review eight stocks of companies that you should consider selling in the next two weeks. In some cases, these companies may be stocks you can look at later in 2019, in other cases, these are stocks that you may need to say goodbye to forever.
Quick Links
- Square
- Micron Technology
- Twilio
- Proctor & Gamble
- Chipotle
- Activision Blizzard
- Under Armour
- Baidu
#1 - Square (NYSE:SQ)
Square (NYSE: SQ) - There’s no question that Square caught lightning in a bottle. They recognized the opportunity that came from an increasing number of small proprietors who run their business off their smartphone, including processing their credit card transactions. Not only did they recognize this opportunity, but they also found an all-important way to monetize it. This gave the company a competitive advantage by allowing it to penetrate a niche that larger credit card payment processors such as First Data had largely ignored. As a result, savvy investors were quick to jump on Square’s initial public offering (IPO) in 2015 and drove the stock up to its present value, which is still 600% higher than the IPO despite the late year sell-off.
But Square faces problems on both the technical and fundamental fronts. On the technical side, its stock recently fell below its 200-day moving average and has failed to reclaim it. It also appears to be forming a head-and-shoulders pattern. Both of these indicators, while potentially short-lived, suggest the stock has further room to fall from its current value. What may be more concerning for investors is that the moat that they had built is under attack. PayPal recently announced plans to acquire Europe’s iZettle, which will give them access to the technology that will allow for credit card processing. And similar technologies are popping up and being adopted by small businesses as they upgrade their iPhone or Android device.
About Block
Square, Inc provides payment and point-of-sale solutions in the United States and internationally. The company's commerce ecosystem includes point-of-sale software and hardware that enables sellers to turn mobile and computing devices into payment and point-of-sale solutions. It offers hardware products, including Magstripe reader, which enables swiped transactions of magnetic stripe cards; Contactless and chip reader that accepts EMV® chip cards and Near Field Communication payments; Chip card reader, which accepts EMV® chip cards and enables swiped transactions of magnetic stripe cards; Square Stand, which enables an iPad to be used as a payment terminal or full point of sale solution; and Square Register that combines its hardware, point-of-sale software, and payments technology, as well as managed payments solutions.
Read More - Current Price
- $60.16
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 29 Buy Ratings, 5 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $87.64 (45.7% Upside)
#2 - Micron Technology (NASDAQ:MU)
Micron Technology (NASDAQ: MU) - Technology stocks, like Micron Technology, can frequently be defended from a buy-and-hold perspective. However, Micron is one of many semiconductor businesses that have seen the second half of 2018 be an unmitigated disaster. Shares of Micron have are down 19% since September and that was after it had lost 40% over the summer. To be fair, Micron is certainly not alone. 32 out of 44 semiconductor companies with market caps over $2 billion are down at least 10% over the last three months. And about a quarter of those are down over 20%. Semiconductors may be a very attractive business, but the sector is notoriously cyclical, and right now that cycle is getting slaughtered. One of the reasons for this is the growing belief that the economy is heading towards a recession - if not in 2019, then in 2020 or 2021. The news isn’t all bad. Micron recently implemented a stock repurchase plan which should allow them to post higher earnings per share (EPS) in their 2019 first-quarter earnings report, and some analysts are showing the stock as having a high upside in the next two years. However, now seems like the time when sitting on the sidelines and waiting might be better than trying to catch the knife while it’s falling.
About Micron Technology
Micron Technology, Inc designs, develops, manufactures, and sells memory and storage products worldwide. The company operates through four segments: Compute and Networking Business Unit, Mobile Business Unit, Embedded Business Unit, and Storage Business Unit. It provides memory and storage technologies comprising dynamic random access memory semiconductor devices with low latency that provide high-speed data retrieval; non-volatile and re-writeable semiconductor storage devices; and non-volatile re-writable semiconductor memory devices that provide fast read speeds under the Micron and Crucial brands, as well as through private labels.
Read More - Current Price
- $109.41
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 25 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $158.72 (45.1% Upside)
#3 - Twilio (NYSE:TWLO)
Twilio (NYSE: TWLO) - Twilio’s stock is up for the year so this goes against the grain of harvesting losses. However, if you’re looking to pocket some gains for the year, TWLO could be a great choice. Twilio powers the communications systems for a number of well-known names such as Uber, Netflix, Airbnb, and Nordstrom. And the stock is up over 300% this year – that’s a gain of over three times the best-performing stock in the S&P 500. But it’s fair to ask if the stock is overvalued considering how much uncertainty exists both in the economy and the market. A forward price/earnings (P/E) ratio of close to 600 and the fact that the stock is currently trading at 10 times revenue should be reason enough for investors to proceed with caution. There is also a concern that the technology does not necessarily provide the barrier to competition as it may seem. In 2017, the stock tumbled 26% when CEO Jeff Lawson reported on an earnings call that Uber was going to be reducing its reliance on Twilio’s technology. And in November, shares of Twilio dropped 13.76%. Cloud computing is the future, and Twilio certainly looks like it will be a force for years to come. However, in investing pigs get fat and hogs get slaughtered, now might be the time to take some profits and see where Twilio goes in the short term.
About Twilio
Twilio Inc, together with its subsidiaries, provides customer engagement platform solutions in the United States and internationally. It operates through two segments, Twilio Communications and Twilio Segment. The company provides various application programming interfaces and software solutions for communications between customers and end users, including messaging, voice, email, flex, marketing campaigns, and user identity and authentication.
Read More - Current Price
- $58.86
- Consensus Rating
- Hold
- Ratings Breakdown
- 9 Buy Ratings, 11 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $69.38 (17.9% Upside)
#4 - Proctor & Gamble (NYSE:PG)
Proctor & Gamble (NYSE: PG) - Proctor & Gamble shares have climbed nearly 30% since May. Considering that the S&P 500 Index is down 2.4% over that same period, it’s fair to ask if investors have forgotten what P&G is? Defensive stocks aren’t supposed to be behaving this way. Sure enough, analysts are starting to take a closer look at valuation, and they are sensing that P&G is a good stock that is overbought, which makes it a good candidate for profit taking. Investors are seeking the security of defensive stocks. The market has been volatile. The questions surrounding the direction of the economy are not getting clearer. And it’s hard to deny the attractiveness of a company like P&G in these times. But all of this growth is being fed by uncertainty over if, and when, the U.S. economy will tumble into recession. The problem for a stock like P&G is if the economy does enter a recession, the stock will go down and if the economy improves (i.e. takes away recession concerns), the stock will go down. It’s thriving in an unsustainable area with likely only one way to go.
About Procter & Gamble
The Procter & Gamble Company provides branded consumer packaged goods worldwide. It operates through five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. The Beauty segment offers conditioners, shampoos, styling aids, and treatments under the Head & Shoulders, Herbal Essences, Pantene, and Rejoice brands; and antiperspirants and deodorants, personal cleansing, and skin care products under the Olay, Old Spice, Safeguard, Secret, and SK-II brands.
Read More - Current Price
- $169.15
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $174.29 (3.0% Upside)
#5 - Chipotle (NYSE:CMG)
Chipotle (NYSE: CMG) - Chipotle is an amazing turnaround story. In 2015, the company began a three-year stretch where it was rocked by food safety issues that crashed the high-flying company and its stock. But those days seem to be behind it and the company has enjoyed a year in which their stock has nearly doubled. But the company is seeing less traffic, and it’s not the result of food safety. There’s an expression in sports, “don’t let them see your backup”. Unfortunately for Chipotle that looks like it may have happened. The fast-casual space that they helped invent is highly competitive. When Chipotle was “on the sidelines” taking its lumps over the e-coli scare among other issues, consumers left and found that they might like different options. For investors, this means that their profits are being generated by higher prices and that’s not sustainable. This points to their being a ceiling to the stock and it seems that Chipotle’s stock based on analysts’ views of forward earnings and EPS may be at that level.
About Chipotle Mexican Grill
Chipotle Mexican Grill, Inc, together with its subsidiaries, owns and operates Chipotle Mexican Grill restaurants. It sells food and beverages through offering burritos, burrito bowls, quesadillas, tacos, and salads. The company also provides delivery and related services its app and website. It has operations in the United States, Canada, France, Germany, and the United Kingdom.
Read More - Current Price
- $49.81
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 17 Buy Ratings, 10 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $62.88 (26.2% Upside)
#6 - Activision Blizzard (NASDAQ:ATVI)
Activision Blizzard (NASDAQ: ATVI) - If you’re like many people, you’ll probably be watching people playing Fortnite over the next few weeks. If you’re a shareholder of Activision, all those times should be a reminder of why you want to sell, sell, and sell. The free, online adventure game has seen its user base expand by 125 million players in less than a year. And despite it being free, it generated over $300 million in revenue for the month of May. ATVI, by contrast, brought in $550 million from its entire catalog of gaming titles. Gaming is an industry of “what have you done for me lately”? And Activision was ruling the roost when their online adventure game Call of Duty was ruling the roost. The problem? Games like Call of Duty and Black Ops require PC-client software. Fortnite does not. Nor does it require an expensive graphics card. This is a seismic industry switch that ATVI has yet to respond to. Will they? Perhaps. The exciting appeal of the gaming sector is that there will always be the next thing. However, with ATVI trading at 66 times earnings, it may be wise to sell the stock during this fortnight and wait to see what the first quarter of 2019 brings.
About Activision Blizzard
Activision Blizzard, Inc, together with its subsidiaries, develops and publishes interactive entertainment content and services in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company operates through three segments: Activision, Blizzard, and King. It develops and distributes content and services on video game consoles, personal computers, and mobile devices, including subscription, full-game, and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision and Blizzard products.
Read More - Current Price
- $94.42
- Consensus Rating
- Buy
- Ratings Breakdown
- 1 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $95.00 (0.6% Upside)
#7 - Under Armour (NYSE:UAA)
Under Armour (NYSE: UAA) - Under Armour’s stock is on fire. 2018 has seen the stock price increase by approximately 60%. To put that in perspective, that’s a higher percentage gain than the FANG stocks and even some of the year’s top initial public offerings (IPOs). What should concern investors going forward is why did it rise so much and what does that say about future performance? To answer the first question, Under Armour had benefited from exceedingly low expectations. That’s not their fault. As a company that is rooted in athletic performance, they are playing the schedule they have. However, a look under the hood shows a restructuring based on cost cutting and more efficient inventory management, not true market share growth. To illustrate that, its revenues rose just 2% in the last quarter, with North American sales actually declining by the same percentage. On that score, the company is facing challenges as consumers are moving back towards fashion and away from the “performance sportswear” that made Under Armour the trendy choice just a few years ago. This has led UAA to start expanding its distribution into lower-end stores such as Kohl’s, where the company may have to compete with other brands that use heavy discounting, something UAA has been reluctant to do. With a forward price-earnings multiple of 69, this is a stock that looks overvalued at the present time.
About Under Armour
Under Armour, Inc, together with its subsidiaries, develops, markets, and distributes performance apparel, footwear, and accessories for men, women, and youth. The company provides its apparel in compression, fitted, and loose fit types. It also offers footwear products for running, training, basketball, cleated sports, recovery, and outdoor applications.
Read More - Current Price
- $6.90
- Consensus Rating
- Reduce
- Ratings Breakdown
- 1 Buy Ratings, 11 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $7.04 (2.1% Upside)
#8 - Baidu (NASDAQ:BIDU)
Baidu (NASDAQ: BIDU) - Baidu looks like a very inviting Christmas present. Sitting there with a P/E ratio of just 17, it has had profit growth of 6% in 2018, but Wall Street analysts are expecting the stock to return to the double-digit earnings growth it has enjoyed for the last few years in 2019. And “the Chinese Google” has a market cap of just $61 billion as compared to the $729 billion market cap of GOOGL. And if that weren’t enough consider that even if Baidu’s market was limited to China that would still account for nearly 20% of the world’s population. The problem is for all those great numbers, Alphabet remains the better option. Furthermore, investors should be mindful that owning BIDU does not mean owning shares in the actual company. Rather like Alibaba and Tencent for example, investors who buy Baidu stock are actually taking ownership of shares in a “variable-interest entity” located in the Cayman Islands that has links to the parent company. This may be a distinction without a difference in terms of profitability, but it is a risk that you may not want to take. The holidays should be a time when you rest and relax, not worry about the growth of a speculative stock.
About Baidu
Baidu, Inc engages in the provision of internet search services in China. It operates through two segments: Baidu Core and iQIYI. The company offers Baidu App to access search, feed, and other services using mobile devices; Baidu Search to access its search and other services; Baidu Feed that provides users with personalized timeline based on their demographics and interests; Baidu Health that helps users to find the doctor and hospital for healthcare needs; and Haokan, a short video app.
Read More - Current Price
- $88.98
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $149.60 (68.1% Upside)
As the ball gets set to drop on 2018, it’s time for investors to take off the rose-colored glasses and see their portfolio for what it really is. It’s been a year where volatility has returned to the market in a big way, and there continue to be unresolved issues both in terms of domestic policy (e.g. the pace of interest rate hikes, a potential government shutdown) and macroeconomic concerns (i.e. the continuing trade dispute with China). All of these can cause you to want to just hang on and wait until the dust settles. But that would be the wrong approach. Now is the perfect time to take some profits from companies that you think may be ready to take a pause after a great year. And, it may be a prudent time to take some losses on underperforming stocks. This “harvesting” can help offset your gains and may make you come out ahead in terms of your taxable events.
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