Stock Watch


6 Stocks to Sell Now

Jeff Brown

All of these companies are facing major problems. If you own any of these stocks, you might consider unloading them.



'Sell in May and go away,' the adage goes. Lock in profits on your stocks, book losses, take a vacation, avoid the market's summer doldrums.Of course, unloading bad stocks is a good strategy year-round, but in honor of tradition, here's our list of six top 'sell' candidates for May. They range from headline grabbers such as Best Buy and J.C. Penney to less-well-known companies that are suffering their fundamental challenges more quietly.

See Also: Sell in May -- Market Timing that Works

1. Garmin
Use of GPS devices is soaring, which should be good for an established player like Garmin (symbol GRMN), one of the trailblazers in global positioning system navigation. But Garmin, a leader when GPS mainly served pilots and boat owners, faces growing competition now that navigation chips are embedded in everything from smart phones to tablets to cameras.

The result is a shrinking business. Sales of automotive and mobile devices, together accounting for about 55% of Garmin's revenue, fell from $1.67 billion in 2010 to $1.49 billion in 2012. Although the Switzerland-based company is pushing hard to increase sales of in-dash navigation systems for vehicles, it warned in its recent annual report that revenues from the critical automotive business, which makes dashboard and portable units for vehicles, are likely to continue falling. Overall, revenues fell by 2% in 2012, and Garmin's earnings of $2.78 per share were far below the $3.51 per share the company made in 2009.

The firm's well-regarded high-end products, such as navigation systems for aircraft, enjoy a relatively secure market because stringent regulation by the federal government keeps new entrants at bay. But those markets are not big enough to offset Garmin's challenges in consumer products. At $34.72, the stock sells for 14 times estimated 2013 profits, which are expected to be down from last year. That's too high. (Share prices are as of April 12.) The shares yield a generous 5.2%, and Garmin has gradually raised its dividend in recent years. Although the company says it is confident that it can maintain its payout, a fall in the share price could easily offset the income from Garmin's dividend.

Advertisement

2. Darden Restaurants
People have to eat, right? Yes, but they don't have to eat at mid-price eateries such as Olive Garden, Red Lobster and LongHorn Steakhouse, all belonging to Darden Restaurants (DRI). Analysts say the company faces long-term troubles unless its tired brands spice things up with updated menus, restaurant remodeling and slicker promotions.

Darden's chains occupy the space above fast food and below fine dining. The firm is the biggest player in this casual-dining category, giving it clout with suppliers. But diners can easily go elsewhere if they want quick, inexpensive food, or if they prefer to pay up for a memorable evening. A weak economy has hurt Darden's traffic, and it may continue to — especially as this year's increase in payroll taxes chews into households' dining-out budgets.

All of this is pinching results. For the quarter that ended February 24, Darden earned $1.04 per share, down from $1.28 in the year-earlier period. Sales were up slightly, but only because the firm added 108 company-owned restaurants and purchased 40 Yard House restaurants. A worrisome sign: a 4.6% decrease in same-store sales (sales at restaurants opened at least one year) at Olive Garden, Red Lobster and LongHorn restaurants. Analysts expect earnings to fall 12%, to $3.15 per share, in the fiscal year that ends this May and to barely budge in the May 2014 fiscal year. At $50.26, the stock sells for 16 times estimated current-year earnings. Like Garmin, Darden sports a high dividend yield, in its case 4.0%. Darden, too, says it is confident that it can maintain the current dividend rate. Again, however, the yield is unlikely to offset a fall in the share price.

3. Strayer Education
Everyone knows that college tuition has been soaring at two or three times the inflation rate, and that should allow for-profit colleges such as Strayer Education (STRA), owner of the 100-campus Strayer University and its online operation, to keep raising prices. Add intense demand from adults attracted to Strayer's curriculum, which focuses on business, accounting, information technology and similar practical subjects, and you'd expect Strayer to be printing money.

But it's not. For 2012, revenue was $562 million, down from $627 million in 2011 and $637 million in 2010, while per-share earnings tumbled to $5.79, from $8.91 the year before. In fact, it's hard to find a financial figure that hasn't moved the wrong way. The stock has fallen from near $112 last July to $48.84. Strayer suspended its dividend in November.

Strayer faces a lot of headwinds. College enrollment is falling, and Strayer's drifted down to 49,323 in 2012, from 56,002 in 2010. Lawmakers and regulators may clamp down on for-profit colleges that have poor graduation rates and leave students with loads of debt and jobless. Federal programs such as Pell Grants, a critical source of funding, could shrink over budget and debt concerns, and Strayer's future students could become ineligible for loans if too many of their predecessors fall behind on payments. Finally, Strayer's online study program faces growing competition from traditional nonprofit institutions responding to students' demand for low cost and convenience.



Editor's Picks From Kiplinger


You can get valuable updates like Stock Watch from Kiplinger sent directly to your e-mail. Simply enter your e-mail address and click "sign up."

More Sponsored Links


DISCUSS

Permission to post your comment is assumed when you submit it. The name you provide will be used to identify your post, and NOT your e-mail address. We reserve the right to excerpt or edit any posted comments for clarity, appropriateness, civility, and relevance to the topic.
View our full privacy policy


Advertisement

Market Update

Advertisement

Featured Videos From Kiplinger