High P/Es, insider selling and earnings misses. October is not off to a promising start as stocks continue their slide with big losses on all the major indices. In a negative environment such as this, it is wise to sell any stock that is not performing well. And stocks that have a high price-to-earnings ratio with a history of heavy insider selling or earnings misses should be at the top of your list. This month, our list of stocks to sell puts a heavy emphasis on those with a high degree of risk in these categories.
However, remember that bear markets are characterized by big rallies, usually as a result of short covering. And the market is currently very oversold and due for a bounce. So use that as an opportunity to unload these risky stocks or enter short positions.
Here is our list of stocks to sell in October:
Stock to Sell #1 – BorgWarner
BorgWarner (NYSE:BWA) is a prime supplier of highly engineered components and systems for automotive drive train systems.
Despite revenue improvements in 2011 (up 27%) and an increase in earnings estimated to be $4.35, up from $3.07, the stock has broken down from a rounding top. Note the buildup of sellers and the negative momentum along with the break at around $66. The downside target for BWA appears to be under $50.
Stock to Sell #2 – Delta Air Lines
Delta Air Lines (NYSE:DAL) expects to report earnings of 68 cents versus 70 cents in 2010. Higher fuel costs and a merger with Northwest Airlines will create additional costs.
Insiders have been sellers on balance for the last year. The stock has fallen from almost $15 last October, and a break through $7.50 will likely result in a challenge of its low at $6.41.
Stock to Sell #3 – Green Mountain Coffee Roasters
Green Mountain Coffee Roasters (NASDAQ:GMCR) has had a remarkable run, doubling from $50 in March. But at the current price, it is selling at 90 times earnings while its primary product, coffee, is rising in price.
A break of $90 this week will most likely drop GMCR to its next support at $83.50. But if that fails to hold, look for a major sell-off. Sell GMCR stock if you’re long and short it with a stop-loss at $100.
Stock to Sell #4 – Juniper Networks
Juniper Networks (NYSE:JNPR), a provider of Internet protocol networking products, had a strong earnings report in 2010, but expects a decline in earnings this year and continued slowing sales. An unfavorable product mix seems to be at the core of the company’s problems.
Insiders have been very strong sellers of the stock, which has fallen from over $45 in January to a current price of $17. The recent breakdown from a rectangle renders a new target of $13. Sell JNPR at market if long and sell it short for a trade.
Stock to Sell #5 – NetApp
NetApp (NASDAQ:NTAP), a major provider of storage and data management systems, has had its analyst recommendations lowered recently due to a sharp drop in orders from the government. This will likely result in a number of adjusted earnings estimates by analysts.
Within the past year, the stock has been subjected to strong insider selling. Technically it is in a bear market with support at $33. A break of the support line could drive the stock to the mid-$20s. Sell NTAP at market.
Stock to Sell #6 – Salesforce.com
Software company Salesforce.com (NYSE:CRM) is a provider of enterprise cloud-computing software. The stock made a high of over $160 in July, but since has accumulated heavy selling.
Spending for cloud computing products by the industry is expected to drop sharply in 2012. So at an expected P/E of over 500, this stock is vulnerable to a big sell-off.
During the past three months, insiders sold large amounts of the stock. A break of the support line at $110 could result in a massive breakdown with a minimum target of $80. Sell CRM short with a stop-loss at $120.
