Despite the recent rally in stocks, it looks like investors will have to endure volatility – and rising interest rates – for a bit longer. That means it’s time for you to look at stocks to sell.
After a rough year in 2022, you can’t blame investors for having a little bit of “irrational exuberance” to start the year. Many stocks benefited from “the January effect.” This perceived phenomenon takes place when stock prices rise sharply in January after selling off in December.
With the market on the rise, you may be tempted to deviate from your strategy and look at some risk-on stocks on your watchlist. That would be a mistake. Interest rates will continue to rise as the Federal Reserve hopes to see a “significant decline” in inflation later this year.
So that means investors will have to be patient a little while longer and that means it may be time to find some stocks to sell in your portfolio. Remember, selling a stock in many cases simply means that the stock’s performance is likely to underperform the broader market.
When market conditions improve, these stocks may be turnaround candidates. But for now, it’s time to say goodbye to these three stocks.
DocuSign (NASDAQ:DOCU) stock is up 14% since the beginning of the year. Some of those gains are explained by the company’s earnings report in December. The company beat on both the top and bottom lines. The latter was something they hadn’t done for three quarters.
In fact, the company posted positive earnings for the first time in fiscal year 2022. In the next five years, DocuSign is expected to show double-digit growth in both revenue and earnings. However, in the last quarter, earnings were down 91% year-over-year while revenue was up 18%.
The largest gains took place after the company announced two new business teams. One that particularly seemed to fire up DOCU stock was the creation of a marketing and growth unit. This unit plays into the idea that DocuSign needs to find different avenues of business to grow both revenue and earnings. That can’t come a moment too soon since the housing market is still in a slump.
The consensus price target for DOCU stock is approximately 2% lower than its current price. If the company can manage to find new revenue streams, there will be time to grab shares on the way up. But in the current market environment, there are better options.
After being down over 30% in 2022, Roblox (NYSE:RBLX) stock is up 35% in 2023. It seems some investors are latching on to the company’s daily active user count, which is rising.
It’s also fair to say that the sharpest increase in RBLX stock came after Meta Platforms (NASDAQ:META) delivered better-than-expected earnings on Feb. 2.
The thinking is that gives the metaverse theme a shot in the arm. However, one of the features of the Meta Platforms earnings call was its lack of focus on the metaverse, and maybe investors are realizing that as well. RBLX is down 5% this week.
In putting Roblox on a list of stocks to sell, I’ll keep it even simpler. The company continues to grow revenue but is not profitable. It’s delivering negative earnings per share that are even lower than analysts project, and it’s not expected to be profitable over the next five years. Until the company can figure out how to turn that around, there are better tech stocks to consider.
Unlike the first two stocks to sell on this list, Altria Group (NYSE:MO) didn’t enjoy the January effect that boosted many stocks. However, MO stock has been on the rise since its earnings report. The company beat on the bottom line and, more importantly, announced a share buyback program.
Share buybacks increase a company’s earnings per share. And that will help ensure that Altria can continue issuing a dividend, which is one of the better reasons to own MO stock. But a larger problem is that Altria is seeing its revenue rise due to higher prices even though volume is dropping.
This is a problem that Altria continues to face as tobacco products continue to fall out of favor. If Altria had real pricing power, they would see rising volume regardless of the higher price. If that doesn’t turn around, the dividend growth, which is currently at an unsustainable 117% in the last three years, will slow down making MO stock less attractive.
On the date of publication, Chris Markoch did not have (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.