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5 Stocks to Sell for 2022

Kiplinger
Kiplinger
 2021-12-07
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Many investors approach the new year looking for fresh investment ideas where they can put their money and hopes to work. But without trying to be too negative, a little end-of-year paring can be prudent, too ... thus, it pays to examine one's own portfolio for stocks to sell as well.

No less than Warren Buffett, the champion of buy-and-hold investing, has claimed that "our favorite holding period is forever," referring to his Berkshire Hathaway (BRK.B) equity portfolio.

Sometimes, however, reality gets in the way. Sometimes, a stock's long-term outlook takes a turn for the worse, and the best thing you can do is collect your profits (or take your lumps) and move on.

Even the best gardens need pruning. Just ask Buffett, whose Berkshire called it quits with three positions just last quarter alone.

Occasionally monitoring your portfolio for stocks to sell is healthy, and there are plenty of reasons to do it. Maybe a position has swelled from 10% of your portfolio to 20% in recent years; you might want to shave that back down to rebalance your holdings. Or maybe, certain market factors beyond a company's control (say, COVID) has turned a best-in-class firm into a shoddy investment.

Here are five stocks to sell or avoid as we turn the calendar to 2022. Just remember: Sell recommendations can be dicey, especially in a remarkably resilient market. Several of these stocks are backed by high-quality firms, and while they look like Sells now, they could become more appealing within months or even weeks given re-valuation or business improvement.

Data is as of Nov. 5. Stocks listed in alphabetical order. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.

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Rising interest rates and some cooling of a red-hot housing market could put Rocket Companies (RKT, $17), the country's largest mortgage provider, at a disadvantage.

Rocket says it expects to claim a 10% share of 2022 mortgage-origination volume, up from 7.43% in 2020 and an estimated 8.31% share in 2021.

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The problem is, a 10% share of what's expected to be a $3.0 trillion market in 2022 would represent a 12% to 15% drop in mortgage volume for Rocket, according to calculations from analysts at Wedbush Securities, who put RKT among their stocks to sell with an Underperform rating.

Rocket should still see positive revenue growth attributable to Rocket Auto and other divisions. But Wedbush analysts see profits contracting to $1.40 a share in 2022 and 2023, down from $2.27 in 2021. They see the stock trading at $14 over the next 12 months.

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The pandemic is still hurting sales in some of Honeywell International's (HON, $225) businesses, including aerospace, as well as chemicals and materials. Rising costs of raw materials are putting a dent in the company's results, too.

Colin Scarola, an analyst at investment research firm CFRA, has a Strong Sell rating on this industrial giant that makes a variety of products, from air conditioners and generators to safety gear and light bulbs.

Post-COVID realities – such as fewer office tenants because of remote work – could mean soft demand for Honeywell products for another two years, he says.

And like several of these stocks to sell, valuation is a concern. At $225, the stock trades at 25 times expected earnings in 2022 – a premium to its typical forward price-to-earnings (P/E) ratio of 20.

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Not every sell recommendation is because the company's a dog. If you're looking for stocks to trim, consider Nike (NKE, $178).

The company has "strong brand momentum" and a "fortress balance sheet," says CFRA analyst Zachary Warring. Nevertheless, in November he lowered his call on Nike from Hold to Sell following a huge run-up in the stock price after the company's quarterly earnings report in September.

The shares trade near a high of 48 times estimated earnings for the next 12 months, despite supply-chain issues and pressures from persistent inflation.

The activewear industry is also likely to lose momentum as more people go back to work and school as COVID-19 vaccination rates continue to rise and new therapeutic drugs become available. CFRA's 12-month target for the shares is $150; well below current levels.

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Early in 2021, this maker of blades used in wind turbines was a "green chip" favorite, trading at nearly $80 per share, or almost 50 times earnings. But shares of TPI Composites (TPIC, $30) have more room to fall, say analysts at UBS Securities, who recommend selling.

UBS recently reduced its 12-month price target for the stock from $44 to $20, and it warns investors that the consensus of analysts' earnings estimates is still too high, causing the shares to look like a bargain when they're not.

Supply-chain challenges are cutting into TPI Composites' prospects, with the cost of building new wind projects roughly 30% higher than they would be normally, due mainly to elevated steel and freight costs.

"We see near-term risk that developers delay projects while awaiting a more normalized cost environment," the analysts write.

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Sales are up, but profits are nonexistent at this online real estate platform.

BofA Global Research analysts, who have Zillow Group (ZG, $66) among their stocks to sell, rating it at Underperform, think ZG could fall to $50 over the next 12 months.

Zillow recently said it would shut Zillow Offers, the division that helped homeowners sell without a broker. That's a positive move, says BofA analyst Curtis Nagle, because the business was "risky and unprofitable."

But a cooling real estate market signals a deceleration in its core business, which generates ad revenue from brokers on its online marketplaces, Zillow.com, Trulia and HotPads.

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