If you’re looking to invest in the stock market right now, there may be more profit to be made in being a bear rather than being a bull.
After all, there’s a whole heap of uncertainty — from geopolitics to natural disasters to concerns about valuation. Adding to the uncertainty is that September is typically a bad time for investors; according to Bespoke Investment Group, September is the only calendar month that has averaged a negative return over the last 100 years of Dow Jones Industrial Average DJIA, +0.06% performance, posting an average decline of about 1.1%.
Sure, historical norms aren’t an airtight predictor of what we’ll see in September this year. And of course, there are some strong stocks — like the five I mentioned in a previous column — that could hang tough or even swim upstream against a current of negativity.
But if you’re comfortable shorting stocks or buying put options, there are a few targets that look like much more attractive trades than simply going long in an overvalued blue chip. Here are some names I expect to break down big-time over the next several weeks. If you own these stocks, consider protecting yourself by getting out now.
The pain started for Qualcomm Inc. QCOM, -1.47% at the beginning of the year, after a $1 billion lawsuit leveled by Apple Inc. AAPL, +1.30% It isn’t just the 10 figures in potential damages that matter, but also the core notion that Qualcomm was placing “onerous” burdens on its licensing and unfairly charging Apple and others for use of its patented technology. Lawsuits were also filed in China and the U.K. This is going to be an epic legal battle that could reshape the entire mobile technology sector.
Nobody knows how this issue will resolved — and it most certainly won’t be resolved soon — but based on 2017 declines, clearly the market thinks there’s at least a puncher’s chance Qualcomm is in serious jeopardy. Qualcomm shares are down about 22% year-to-date, even as the iShares PHLX Semiconductor ETFSOXX, -1.18% has tacked on 22% to the upside and the broader S&P 500SPX, -0.15% is up about 10%.
That targeted negativity sets up a good short-term trade to the downside in Qualcomm, particularly after early September action has put the stock around a new 52-week low. In 2016, the stock briefly crossed under $45 and it isn’t unrealistic to expect it to be trading there again in a few weeks’ time.
Qualcomm may find a way through this legal battle in the long term. But right now, you aren’t going to find many buyers of this out-of-favor company.
As a specialty retailer, L Brands Inc. LB, -0.70% assuredly has some secular headwinds holding it back. But I don’t want to relitigate the obvious trends behind the slow death of brick-and-mortar retail in America.
Rather, it’s important to look at the specifics of the owner of Victoria’s Secret, Bath and Body Works, and other brands. This is simply a poorly run company that would be in trouble regardless of bigger-picture trends at work.
The short-term momentum for shares is one factor. Share plunged more than 20% in August, and have only moved up a hair from a new 52-week low. The ugly sales performance is another, with a big revenue decline in its third-quarter report, and a painful 9% drop in same-store sales in July followed by an 8% sales decline in August. Adding to the pain was another decline in gross margins, meaning that the company is getting pinched on both the top and bottom line.
Throw in a cut to full-year guidance, and why in the world would you take a shot on this struggling name?
L Brands is a no-brainer for those looking to play the short side. It’s in an unloved sector, with terrible fundamentals and clear downside momentum in September.
The same toxic stew of weak fundamentals, an out-of-favor sector and downside momentum also holds for energy also-ran Range Resources Corp. RRC, -7.43%
There are so many things to worry about, but a quick list includes:
• Range Resources continues to struggle to turn a profit, and most recently missed Wall Street forecasts for earnings per share and warned it will be way off on 2017 production targets.
• Energy stocks in general have been chronic underperformers, most recently declining 14% year-to-date as measured by the Energy Select Sector SPDR ETFXLE, -1.06% compared with a 10% gain for the broader market.
• RRC stock is even worse than its peers, recently revisiting a 52-week low set in August after those ugly earnings, and is down a gut-wrenching 50% year-to-date.
• Analysts expect it to go even lower, at least based on the recent downgrade from Goldman Sachs.
• Oil and natural gas prices remain depressed, and long-term trends suggest they will stay there. Throw in the disruptions to energy production and infrastructure thanks to tropical storms in the South, and it’s clear that outside catalysts are only throwing fuel on this dumpster fire of an energy stock.
Again, there are no certainties on Wall Street. But if you’re looking for a compelling case for a stock to go up or down in the next few weeks, it’s hard to find a more airtight argument than the one against Range Resources.