There’s a saying in investing, attributed to Warren Buffett, that you don’t see who’s swimming naked until the tide goes out. Essentially, this means that poorly run and troubled companies are most exposed during market downturns. This is certainly proving to be the case this year. With all the major U.S. indices now in bear markets, many stocks that were flying high during the pandemic are getting crushed under the weight of poor financial results, bad management and flawed strategies. Since U.S. interest rates are likely to stay elevated for some time, those equities will probably keep getting crushed for the foreseeable future. For investors looking to avoid getting badly hurt by those names, here are seven S&P 500 stocks to sell before they die.
| MRNA | Moderna | $121 |
| META | Meta Platforms | $137.67 |
| GM | General Motors | $33.21 |
| NFLX | Netflix | $236 |
| SWK | Stanley Black & Decker | $79 |
| GPS | The Gap | $8.50 |
| PTON | Peleton | $7.40 |
S&P 500 Stocks to Sell: Moderna (MRNA)
Eighteen months ago, Boston-based pharmaceutical company Moderna (NASDAQ:MRNA) was the best performing stock in the S&P 500. From the time the pandemic hit in March 2020 to September 2021, MRNA stock ran up an incredible 2,038%, soaring from $21.30 to $449.38 per share.
Investors who held Moderna stock throughout the development and commercialization of the company’s COVID-19 vaccine reaped massive returns. But now the stock has suffered a brutal reversal of fortune. Since peaking in September of last year, the share price has collapsed 70%, and it now trades at $121 a share, making it one of the worst performers in the benchmark index.
The demise of MRNA stock can be chalked up to one issue: the company does not have a robust pipeline of drugs in development beyond its coronavirus vaccine. While Moderna was one of the first companies in the world to get its Covid-19 vaccine approved, it does not have a diverse lineup of other medications to help drive its revenue higher.
As a result, Wall Street views Moderna as a one-trick pony. As the sales growth of the company’s Covid-19 vaccine slows, the question has become: What’s next? Until Moderna answers that question, investors can expect its stock to continue sliding lower.
Meta Platforms (META)
A recent headline on CNBC summed up the situation being endured by Facebook’s parent company, Meta Platforms (NASDAQ:META): “Facebook scrambles to escape stock’s death spiral as users flee, sales drop.”
The article highlights that META stock is trading at its lowest level in three years and is one of the worst performers in the S&P 500 this year, as it has tumbled 60% since January. This morning, the shares are trading at $137.67 a share.
The article also details a litany of problems at the company, ranging from declining online advertising revenue to growing competition from social media sites such as TikTok,. Meta also has internal difficulties due to its focus on the Metaverse.
It all adds up to a doom-and-gloom scenario for CEO Mark Zuckerberg and the shareholders who have stood by as the company underwent a brand transformation late last year. Meanwhile, Meta continues to face a barrage of criticism over the misinformation that has spread on its social media platforms.
While Meta Platforms continues to earn the bulk of its revenue from online ads, the company is working double time to shift its core business to virtual reality headsets and other technology needed to create the Metaverse. Whether the switch will be successful is a multi-billion dollar question that is weighing heavily on META stock.
General Motors (GM)
Like most automakers, General Motors (NYSE:GM) is in the process of electrifying its vehicle fleet. The legendary Detroit automaker has allocated $35 billion to the development of electric vehicles through 2025.
In addition to churning out electric models of popular vehicles such as the Chevy Blazer sport utility vehicle and even a fully electric Hummer, General Motors is also developing several EV battery plants across the U.S. All of these initiatives are aimed at catching market leader Tesla (NASDAQ:TSLA) and keeping pace with archrival Ford (NYSE:F). Yet the performance of GM stock suggests that the electric revolution is not going that well at General Motors.
In 2022, GM stock is down 44% at $32.88 per share. While most auto stocks have tumbled this year along with the broader market, investors have sold off GM stock particularly hard.
One of the big reasons for the selloff is that the company continues to face a shortage of parts as it is having difficulty obtaining them. This has hurt GM’s earnings and has disappointed investors on both Wall Street and Main Street.
Most recently, General Motors reported earnings per share of $1.14, compared to the EPS of $1.20 that analysts, on average, had forecast. The supply chain problems and poor earnings have cast a shadow over GM’s big electrification push and raised doubts in the minds of investors.
Although I still hold GM stock due to my position being deeply underwater, I believe other investors should sell shares now, if possible, because the near-term challenges facing the company are just too great.
Netflix (NFLX)
After a decade of dominance, Netflix (NASDAQ:NFLX) is no longer the top streaming platform. That title now belongs to the Walt Disney Co. (NYSE:DIS).
This has led to a crisis at NFLX whose name was synonymous with streaming movies and TV shows not that long ago. Facing a glut of competition, Netflix is taking steps to diversify and bolster its revenue stream, from pushing into video games to launching a new tier for streaming that includes advertising. The company is taking the latter step even though it long said that it would never do so. So far, the efforts have not stopped the erosion of Netflix’s subscriber base, which is down by more than 1 million households this year.
Prior to this year, it had been more than a decade since Netflix reported a net loss of subscribers. News of the loss has sent investors screaming for the exits. After climbing relentlessly during the pandemic, NFLX stock hit a peak of $700 a share in October 2021.
Since then, the share price has fallen 66% to $236. At one point, the stock was down to a 52-week low of $162.71. Can the stock recover even though Netflix’s sector is suddenly crowded with competition?
The jury is out. But Netflix continues to invest heavily in new content, announcing that it is spending $17 billion on programming this year alone. Its rival, Amazon (NASDAQ:AMZN) is spending $15 billion on streaming content.
Stanley Black & Decker (SWK)
Another S&P 500 stock to sell before it dies is Stanley Black & Decker (NYSE:SWK). While investors don’t hear as much about this stock as the others on this list, the tool maker has fallen on hard times. The company went gangbusters during the pandemic as homeowners upgraded their houses while sheltering in place. But after running up 177% between March 2020 and May 2021, SWK stock peaked at $219 a share and has been steadily deflating ever since. Having fallen 60% this year, Stanley Black & Decker stock is now trading at $79 per share, lower than where it was when Covid-19 first hit.
The company just announced that it is eliminating 1,000 jobs in its finance department to help lower its costs as its outlook darkens. The company has said its earnings are being negatively impacted by not only a decline in home renovation projects, but also by rising interest rates and inflation that are leading to a slowdown in overall consumer spending on its power tools.
Consequently, Stanley Black & Decker has announced that it is planning to cut up to $200 million of costs by year’s end. The company has about 70,000 employees worldwide.
The Gap (GPS)
Retailers are another category of stocks that have taken it on the chin this year. But few retail stocks have taken as hard a knock as The Gap (NYSE:GPS).
Down 55% on the year and now trading under $9 a share, GPS stock ended 2021 trading right around $25. The massive retreat has been due to a combination of bloated inventories and poor sales at both The Gap and its sister chain, Old Navy. The San Francisco-based company also recently announced a round of job cuts, trimming 500 positions from its corporate ranks. The layoffs came after the company’s CEO, Sonia Syngal, abruptly stepped down in July.
The negative news at The Gap was also amplified recently with the announcement that singer Kanye West prematurely ended his promotional deal with the clothing and apparel retailer.
This would be a lot for any company to endure in a year. But most of this drama has occurred at The Gap over the summer. Where the company goes from here is not clear. But its reputation with consumers and investors has taken a big hit, and confidence in the company’s management team is low.
With inflation remaining stubbornly high at more than 7% and interest rates expected to continue rising in coming months, don’t expect GPS stock to recover anytime soon.
Peloton (PTON)
Can Peloton (NASDAQ:PTON) survive? If there’s one company on this list that is in real danger of disappearing, it is the internet- connected maker of treadmills and exercise bikes. So far this year, PTON stock has cratered 80% and now trades at under $8 a share. The company is barely keeping its head above the $5 penny stock threshold.
At its pandemic peak, Peloton’s stock was trading near $165 a share. But as gyms and fitness centers reopened and people gave up their subscriptions to Peloton’s online fitness classes that they were using at home, the company’s earnings and stock have imploded.
Of course, Peloton is trying to recover. The New York City-based company has hired a new executive team and switched its strategy from focusing on sales of treadmills and bikes to concentrating more on monthly subscriptions to its online classes.
Most recently, Peloton announced a deal with retailer Dick’s Sporting Goods (NYSE:DKS) to sell its equipment in Dick’s more than 850 outlets across the U.S. The deal marks the first time that Peloton has joined forces with a brick-and-mortar retailer, diversifying its sales approach from strictly online channels.
The company has also struck a deal to place its exercise bikes in all 5,400 Hilton (NYSE:HLT)-branded hotels in the U.S.
Despite these efforts, the question remains whether it is too little, too late for PTON stock.
On the date of publication, Joel Baglole held long positions in GM and DIS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.