Another round of stock market volatility may be just around the corner. This suggests that now is the right time to figure out what stocks to sell in July. Despite the widespread confidence that we have entered a “new bull market,” macro issues like high inflation and rising interest rates persist.
Recent economic indicators suggest that the Federal Reserve, far from pausing or pivoting on interest rate hikes, will continue raising rates in its quest to curb inflation. The prospect of a longer-than-expected economic recovery could throw the market in for a loop. In turn, leading to further rounds of sell-offs.
Overall, stocks are vulnerable, but speculative growth plays have the most to lose if this possible outcome plays out. The riskiest of these names, many of which have experienced strong rebounds this year, could give their latest gains and then some.
Given the risk that the so-called “new bull market” is nothing but a bull trap, consider it time to sell stocks, especially these seven risky stocks to sell in July.
Coinbase Global (COIN)
The big rebound in cryptocurrency prices this year has fueled an outsized rebound in price for shares in crypto brokerage platform Coinbase Global (NASDAQ:COIN). Year-to-date (or YTD), the stock is up a staggering 132.4%.
But those who went contrarian on COIN stock earlier this year are sitting on big gains; taking profit ASAP appears to be the best move for two reasons. First, crypto prices could pull back if rising rates/a further slowdown in economic growth throw investors back into a “risk off” mood.
A crypto sell-off would likely drive a sharp sell-off for COIN. Second, as InvestorPlace’s Larry Ramer recently argued, Coinbase remains in the regulatory crosshairs. The end result could have a material impact on the company’s future operating performance. If you decide to sell off risky stocks in July, COIN is one of the first to bail on if you own it.
Short-squeeze plays aren’t as popular as they once were, but Carvana (NYSE:CVNA) has been one that has worked out very well this year for speculators.
Shares in the online used car retailer are up more than five-fold YTD, largely due to retail traders squeezing the crowded short side (64% of the outstanding float of CVNA stock has been sold short). Yet, while the shorts are sitting on big losses, in the end, they could be vindicated.
Carvana’s management has talked up a strong game for this unprofitable, heavily-leveraged company. The company is guiding for stronger results ahead. Even so, used car prices are expected to keep falling. Sell-side earnings forecasts for CVNA still call for the company to report big losses this year, in 2024, and in 2025. All of this points to CVNA plunging from here, making it one of the top stocks to sell in July.
GameStop (NYSE:GME) has only experienced a moderate rally since the start of 2023. Shares in the video game retailer are up 32.7% YTD. With this, it may seem that this “meme stock king” has less room to fall compared to risky stocks, up by triple-digits this year.
Still, keep in mind that while GME stock may not be at risk of experiencing a sudden plunge, the risk of it steadily falling toward its underlying value remains. As the company pursues a shortsighted strategy that may just well hasten its demise, expect the fading “meme stock aura” still surrounding GME to keep dimming.
So, what is GameStop’s underlying value? Given there’s little end in sight for GME’s continued unprofitability, the underlying value of shares is likely not much more than the stock’s current book value ($4.18 per share) or more than 81% below GME’s current trading price.
Medical Properties Trust (MPW)
Healthcare real estate investment trust (or REIT) Medical Properties Trust (NYSE:MPW) has rallied since May. This move higher is in line with other REITs, which have rallied on rising hopes that the worst is over for rate hikes. Rate hikes place downward pressure on REIT prices.
Yet, while MPW stock has performed well lately, this may prove fleeting. With the Fed clearly not done with raising rates, rate hikes down the road could knock the REIT sector lower. Riskier names like this one could experience even sharper declines.
Not only that, MPW’s fundamentals have not improved in recent months. As a Seeking Alpha commentator argued in June, issues like high leverage and an unsustainable dividend (12.2% forward yield) persist. Concerns about the quality/underlying value of its portfolio haven’t gone away, either. Taking these risks into account, consider MPW one of the stocks to sell in July.
However, I side with the skeptics, who believe that investors have gone overboard with their bullishness on NFLX stock. While recent moves like a crackdown on password sharing, plus the introduction of an ad-supported subscription tier, bode well for future results, said improvements to revenue/profitability, at best, may already be priced in.
NFLX may be able to sustain its current valuation if earnings rise in line with forecasts. However, given the high competition from rival streaming platforms, results could start falling short of expectations. With further gains hinging on a continued turnaround rather than from a secular growth trend like AI (as is the case with other big tech names), Netflix seems to be the FAANG stock most vulnerable to a big drop.
Nio (NYSE:NIO) shares have performed well recently. Even as the China-based electric vehicle (or EV) maker’s latest monthly deliveries were down 17% on a year-over-year basis, investors remain confident that a re-acceleration in growth will transpire during the second half of 2023.
However, those buying NIO stock today could end up regretting their decision. As I recently argued, it appears far more likely that investors will be disappointed with Nio’s operating performance later this year. Either high competition from rival EV makers will lead to lower-than-expected sales growth, or the price cuts Nio has to implement will severely impact margins.
Irrespective of whether the bull market continues through year’s end if poor results arise, NIO stock will likely cough back recent gains. Shares could also drop to new multi-year lows. This heavy downside risk makes NIO one of the stocks to sell in July.
Opendoor Technologies (OPEN)
Much like how REIT stocks have started to bounce back, so too have other stocks tied to the real estate sector. A good example is Opendoor Technologies (NASDAQ:OPEN). Shares in this iBuyer of houses are up by 250% year-to-date.
Mostly on rising hopes that the worst is over for the housing market, it points to diminished chances of OPEN stock experiencing a “game over” moment. Yet, while the housing market has merely deflated, not crashed, assuming that the situation can’t worsen from here could be costly if you’re holding OPEN shares today.
Talk of a continued “housing shortage” notwithstanding, factors like a possible crash in the short-term rental market (which could lead to a glut of former short-term rentals put up for sale) could put severe pressure on housing prices. This could renew concerns about Opendoor’s future prospects, leading to shares cratering back toward prior price levels.
On the date of publication, Thomas Niel did not hold (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.