Since 2000, the stock market has had three major crashes. The first was the 2000 dot-com bubble, the second was the 2008 housing market crash and the third was the pandemic-induced crash in 2020. It’s safe to say that anyone born in the last 30 years is no stranger to market crashes and the impact they have on investing. The task these days is more about knowing which stocks to sell before the crash bottoms them out.
However, it’s impossible to know when a crash will happen exactly. Thus, figuring out which unstable stocks to sell from your portfolio comes more from recognizing when a company’s best days are behind it, rather than trying to get out as the market crashes. More often than not, taking a serious look at a company’s balance sheet and evaluating some key ratios can give insight into how long that company has left before a crash.
Realty Income (O)
As a real estate investment trust (REIT), Realty Income (NYSE:O) is doubly exposed to the risks of a stock market crash alongside an economic recession. Though the company’s primary focus is to provide an attractive dividend yield to long-term shareholders, it’s not likely that many of its real estate holdings will continue to retain value in the event of a broader real estate market correction.
This is because, for the first time in over a year, the bloated housing market did not see the average price of an American home increase. Rather sales are down as many buyers feel the squeeze of inflation on their purchasing power. Moreover, since Realty Income focuses so heavily on commercial real estate, the current interest rate environment is taking its toll on the company’s assets and abilities to acquire more.
As a result, the company’s net income was down 41.21% year-over-year for its first quarter of 2024. Depending on what causes the next market crash, stocks like Realty Income might be on the short list of stocks to sell for many institutional investors.
GameStop (GME)
By now, the meme rally that recently drove GameStop (NYSE:GME) stock through the roof has died down. Of course, most retail investors are aware by now of the risks of trying to time short squeezes and predict meme recurrences. However, for those still holding the stock, a market crash would be extra dangerous for a couple of different reasons.
First, panic in the market would likely lead to a withdrawal of GameStop management from its investing positions. Second, retail investors who were in it for the fun might be more prone to liquidating their position as a form of protection. The resulting price drop might be so significant that it then undoes any of the gains from the stock’s previous meme rallies.
Moreover, GME does not currently exhibit the financial performance or strength that would suggest it is capable of surviving a broader market crash. Thus, it’s a no-brainer among stocks to sell.
Nvidia (NVDA)
There has never been a better time to sell Nvidia (NASDAQ:NVDA) stock. I do not say that because the company is overvalued, but rather because of how intrinsically linked it has become with the broader tech economy. Its prowess in the design and fabless production of graphics processing units and data center components have made it a major player in the so-called artificial intelligence (AI) boom.
Nvidia’s success has transcended beyond its market capitalization and now impacts the Nasdaq and S&P 500 daily. However, with stocks, what goes up must come down, and eventually even NVDA stock will be subject to a correction. Thus, selling it now would allow for a lucrative play of buying back in after it dips.
Ultimately, buying the dip on a stock like NVDA would be a surefire way to maximize profits while decreasing the average cost per share for an investor. That’s because even if you sell at its high point now, it will likely surpass it after the next dip.
On the date of publication, Viktor Zarev 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.