Investors seem to be sliding down the wall of worry faster than they made a difficult climb. That usually means that investors will flee growth stocks in favor of income or value-oriented investments. With that in mind, it may be time to scan your portfolio for growth stocks to sell.
So what is concerning investors right now? The reality of higher-for-longer interest rates may finally be starting to sink in. The 10-year Treasury note is right around 5% and causing some investors to take a risk-off approach. Inflation remains stubbornly high. Concerns remain high that the U.S could be drawn deeper into Israel’s war against Hamas. And that’s just off the top of my head.
The allure of growth stocks is that they frequently outperform the market. But they also tend to underperform the market when economic conditions slow down. As I always say whenever I write about stocks to sell, this doesn’t mean that you need to say goodbye to these stocks forever. But as you get to that tax harvesting time of year, these may be stocks to part with – or at least stop buying – for now.
American Express (AXP)
It’s always challenging putting a Warren Buffett stock on a list of growth stocks to sell. But that’s what I’m doing with American Express (NYSE:AXP). The bullish argument is that the company has a premium client base that makes the company somewhat of an evergreen choice.
The thinking is that higher net worth individuals will continue to use their cards regardless of economic conditions. And that they’ll be less likely to default on their credit card payments.
The company’s October earnings report lends credibility to the first point. American Express beat on the top and bottom lines by an impressive amount. Fair enough. But a counterargument would be that high net worth individuals don’t get that way by having poor spending habits. That doesn’t mean they won’t use their Amex cards. It does, however, suggest they may use them just a little less.
Of the 28 analysts who have issued a rating on AAL stock, 13 give the stock a Hold or Sell rating. That’s hardly a ringing endorsement for selling, but it doesn’t make the stock a full-throated buy either. And the stock’s 2023 performance suggests that investors aren’t fleeing to AXP stock, even trading at 12x forward earnings.
American Airlines (AAL)
The case for listing American Airlines (NYSE:AAL) as one of the growth stocks to sell in the fourth quarter is also based on the consumer. More to the point, is the revenge travel boom winding down? By the looks of the airline’s recent earnings report, not fully. The report wasn’t terrible. American missed slightly on the top line, but beat earnings estimates by nearly 50%.
But that earnings beat was still almost 50% lower on a year-over-year basis. That reflects the rising cost of jet fuel. That’s likely to continue to be a story that bears watching. American feels the same way. They lowered their guidance sharply to a range of $1.50 and $1.80 per share. Analysts have a consensus price target of $2.06 per share.
AAL stock is down 14% in the last month. But that’s just continuing a trend that’s been in place for the last three months. Contrarians may point out that AAL stock is cheap at just 4.7x forward earnings. But right now, there’s more than enough reason to take the other side. That includes the fact that American has not reinstated its dividend.
WD-40 (NYSE:WDFC) has been overvalued for much of 2023. And with investors looking for growth wherever they can find it, a stock that’s up 26% for the year looks pretty good. That’s particularly true when the company has strong, trusted brands that consumers ask for, like Kleenex.
However, WDFC stock is objectively overvalued. The stock is currently trading at 42x earnings and 39x forward earnings. In response, investors may point out that the company has started showing strong topline growth in quarterly earnings. But this appears to be a case of a stock that’s priced for perfection.
At a time when investors may be looking for risk-off assets, there are better options than WD-40. The company has increased its dividend in each of its last 13 years, but the 1.63% yield is lackluster. Plus, short interest on the stock is over 8%.
WDFC stock does not receive a lot of analyst coverage. Of the three analysts that have issued ratings, the stock gets a consensus Hold. But the average price target of $178.67 is over 12% lower than the price of over $200 as of this writing.
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.