7 Stocks to Sell to Survive the Bear Market
Investors shift to manage risk.
In just a single quarter, the strategy for many U.S. investors shifted from capturing gains to managing risk. The S&P 500 just completed its worst first quarter of all time, dropping 20% in the opening three months of 2020. Unfortunately, with no end in sight to the COVID-19 outbreak and all economic projections now in limbo, the market could easily have more downside ahead. Some stocks don’t have business models and balance sheets equipped to handle a potential prolonged slowdown. Here are seven stocks to sell to survive the bear market, according to Bank of America.
Biogen (ticker: BIIB)
Biogen is a biotechnology company that develops treatments for multiple sclerosis, tumors and inflammatory diseases. Analyst Geoff Meacham says Biogen’s spinal muscular atrophy drug Spinraza is facing considerable competition from the Novartis (NVS) drug Zolgensma. Spinraza was a major growth source for Biogen last year. In addition to the new competition from Novartis, Roche Holding (RHHBY) and others, Meacham says patients have been postponing Spinraza treatment as hospitals are reallocating resources to the coronavirus. He says Biogen’s multiple sclerosis franchise is facing pricing pressures and market share erosion. Bank of America has an “underperform” rating and $245 price target for BIIB stock.
TechnipFMC (FTI)
TechnipFMC is a large oil services provider with a focus on offshore operations. COVID-19 travel restrictions and a crude oil pricing war between Saudi Arabia and Russia have sent oil prices plummeting to their lowest levels in more than 20 years. Analyst Vlad Sergievskii says TechnipFMC is facing profitability headwinds and has a rising debt load. He also says consensus financial expectations are too high, the company’s 2020 guidance is in question and the stock is fully valued at its current level. Bank of America has an “underperform” rating and $5.50 price target for FTI stock.
NortonLifeLock (NLOK)
NortonLifeLock is a cybersecurity and data risk management company. Analyst Nikolay Beliov says NortonLifeLock is a low-growth company with deteriorating business metrics and flat operating margins. Over the past 11 quarters, the company has lost 1.1 million direct subscribers, and its average revenue per user has also dropped significantly. Bank of America classifies NortonLifeLock’s business as more discretionary than mission-critical within the software group, putting it more at risk from shrinking information technology budgets. Beliov is projecting a 3% revenue drop in 2020. Bank of America has an “underperform” rating and $14 price target for NLOK stock.
Omnicom Group (OMC)
Omnicom is the world’s second-largest advertising company, generating about 60% of its revenue from the U.S. Advertising and marketing budgets may be among the first expenses companies cut during the COVID-19 shutdown. Analyst Adrien de Saint Hilaire says Omnicom’s growth was likely on track to decelerate in 2020 even before the coronavirus outbreak. He says it will likely be increasingly difficult for Omnicom to expand its margins. In addition, Omnicom is the most exposed ad company to programmatic advertising internalization. Bank of America has an “underperform” rating and $44 price target for OMC stock.
Under Armour (UAA)
Under Armour is a leading athletic apparel and accessories maker. Analyst Robert Ohmes says international growth will not offset lackluster sales in its core North American market. As the company’s earnings and sales growth flattens, he says the stock is at risk of further earnings multiple contraction. Bank of America is projecting just 15 cents of earnings per share in 2020, suggesting the stock is still trading at a forward earnings multiple of more than 50 even after plummeting 63.7% year-to-date. Bank of America has an “underperform” rating and $7 price target for UAA stock.
Ventas (VTR)
Ventas is a real estate investment trust that owns senior housing assets, medical and life science office buildings and hospitals. Analyst Joshua Dennerlein recently downgraded Ventas and said the trust’s capital recycling will weigh on earnings for the foreseeable future. In addition, Dennerlein said senior housing fundamentals will be challenged throughout 2020 due to the COVID-19 outbreak. Finally, he says dividend hikes are likely off the table for the next several years given the REIT’s elevated payout ratio and lackluster earnings growth outlook. Bank of America has an “underperform” rating and $17.50 price target for VTR stock.
Welltower (WELL)
Welltower is another REIT that is heavily focused on senior housing, skilled nursing and medical office building properties. Dennerlein also recently downgraded Welltower and says the trust’s ultimate earnings hit from COVID-19 will hinge on a number of factors, including the length of the outbreak, its mortality rate, the ability for senior living operators to sequester their residents, the rate of move-outs and the negative impact on revenue per occupied room. Dennerlein says there are simply too many unknowns to recommend the stock at this point. Bank of America has an “underperform” rating and $34 price target for WELL stock.
Stocks to sell to survive the bear market:
— Biogen (BIIB)
— TechnipFMC (FTI)
— NortonLifeLock (NLOK)
— Omnicom Group (OMC)
— Under Armour (UAA)
— Ventas (VTR)
— Welltower (WELL)
