With the debt ceiling issue on the horizon, investors face the task of assessing their stock portfolios amidst government spending uncertainties. Given the prevailing uncertainty, investors should carefully consider specific stocks that may encounter significant challenges. Considering the looming uncertainties, this article highlights three stocks to sell.
Investors are confronted with a complex decision-making process. They must choose between two outcomes: successful last-minute negotiations by lawmakers to raise the borrowing limit, as witnessed previously, or a default on financial obligations, potentially leading to catastrophic consequences that are challenging for investors to grasp and factor into stock prices fully.
Without certainty regarding the X-date, the precise day the government will deplete its cash reserves further complicates investment decisions. Considering this critical timeline uncertainty, investors must meticulously analyze potential risks and assess the potential impact on individual stocks.
In summary, the impending debt ceiling and the potential for a government default pose significant challenges for investors. Evaluating stock holdings, comprehending the potential consequences and taking prudent actions amidst this uncertainty is vital for successfully navigating the current market landscape.
Let’s review the list of stocks to sell:
Franklin Resources (BEN)
Franklin Resources (NYSE:BEN) is a global investment firm operating under Franklin Templeton Investments and managing assets worth $1.5 trillion.
The company sells financial advice and products through multiple brands. It earns money from fees tied to the assets it oversees, known as assets under management (AUM). The business benefits from sticky investments, creating an annuity-like nature. As most of the assets are in the capital markets, the value of AUM fluctuates daily.
As a result, the fees collected by Franklin Resources also experience changes. Typically, these fluctuations are relatively modest. However, the numbers can be quite striking during bear markets like the one in 2022. To provide a specific example, in the fiscal year 2022 (which concluded in September), the company witnessed a 15% year-over-year decrease in AUM. This significant decline was primarily driven by diminishing asset values and investors withdrawing funds due to apprehension. Nonetheless, this outcome is not surprising as it aligns with the inherent nature of the business.
While BEN stock has traditionally outperformed the S&P 500, analysts are skeptical about its ability to maintain its lead. The growing preference for indexed investments over traditional stock picking puts pressure on mutual fund providers, raising concerns about BEN’s prospects due to the potential outflows resulting from this trend.
Clorox (NYSE:CLX) stock started strongly in 2023, outperforming the S&P 500 with an 8.7% increase. However, analysts anticipate this outperformance to be short-lived due to challenges faced by the consumer staples giant.
During the pandemic, the company experienced a surge in sales as demand for cleansing products soared. However, as the effects of the pandemic wane, Clorox has been facing pressure on sales and margins due to inflation. The company’s revenue has declined from its peak pandemic levels, with five out of the past eight quarters showing sequential declines.
Despite the temporary surge in demand, a consumer staples company like Clorox knew this spike would not last. Nonetheless, the management took advantage of the favorable conditions and made the most of the situation.
However, as global supply chains faced inflationary pressures, Clorox experienced a significant reversal of fortune. In its fiscal 2022 second-quarter report, which concluded on December 31, 2021, the company disclosed a staggering 12.4% point decline in its gross margin. This update greatly disappointed investors, leading to a sharp decline in the company’s stock price.
At the time, management acknowledged the absence of a simple solution. CFO Kevin Jacobsen clarified that the usual timeframe for cost-cutting and price increases to offset rising costs is 12 to 18 months. However, given the significant inflationary pressures, this process was anticipated to take even longer.
In conclusion, Clorox has encountered challenges with declining sales and margins due to inflationary pressures. Sequential declines in revenue over several quarters further highlight the company’s struggle to maintain its former glory, resulting in its presence on a list of stocks to sell. It is evident that the pandemic was a once-in-a-lifetime event, making a full return to previous success improbable for Clorox.
Consolidated Edison (ED)
Consolidated Edison (NYSE:ED), listed on the New York Stock Exchange, has a rich history dating back to 1823. It serves a vast customer base of approximately 3.6 million individuals in New York City and Westchester County, offering reliable electric, gas and steam services.
ED stock typically falls behind the broader market across various time frames but has also avoided significant underperformance. Wall Street has consistently maintained low expectations regarding its ability to outperform.
Investors remain engaged primarily because of a single factor: the dividend. Consolidated Edison stands out as an exceptional dividend stock. With an impressive track record, the company has increased its dividend for 49 consecutive years, surpassing any other utility within the S&P 500. This achievement places Consolidated Edison in the esteemed category of Dividend Aristocrats and brings it closer to the highly sought-after status of a Dividend King.
While Consolidated Edison’s strategic decisions have not always been successful, such as its own in the troubled Mountain Valley Pipeline, its strong dividend record helps attract value investors despite these challenges. In 2021, the sale of its Stagecoach Gas Services joint venture reflected efforts to navigate market volatility surrounding fossil fuel.
In summary, while Consolidated Edison will attract value investors, it will fail to set the markets on fire. I believe it is one of the stocks to sell.
On the publication date, Faizan Farooque did not hold (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.