UBS has a list of stocks that investors may want to consider selling. They could even be a list of short sale candidates. The UBS team is bashing Apache Corp. (NYSE: APA), Deere & Co. (NYSE: DE), DirecTV (NYSE: DTV), Emerson Electric Co. (NYSE: EMR), Eli Lilly & Co. (NYSE: LLY), Lockheed Martin Corp. (NYSE: LMT) and Target Corp. (NYSE: TGT).
Hedge funds that specialize in running a long/short or a short-only book have been crushed this year. Selling stock short in a bull market has always been a risky business. With an unlimited amount of loss potential, investors need to be very careful in this sometimes dangerous practice. With the current bull market maybe getting a touch long in the tooth, investors may want to consider selected shorts. Or at the very minimum, eliminate the stocks that have run out of gas.
In their Alpha Preferred list of stocks to buy, UBS picks the stocks that are poised to outperform the peers in their sector. They also have a list of stocks that they believe are ready to underperform their sector. Here are seven stocks from the UBS least preferred list of stocks that investors could consider selling short or removing from their portfolio.
Apache Corp. (NYSE: APA) is an energy name that may underperform and is Neutral rated at UBS. Despite selling some of its Middle East reserves, the company still does a tremendous amount of business in that very volatile region. The company is expected to release earnings Thursday morning and estimates have come down in recent weeks. Investors are paid a small 0.9% dividend. The Thomson/First Call price target for the stock is $100, and Apache closed Wednesday at $88.45.
Deere & Co. (NYSE: DE) makes the UBS Key Call list, and not in a good way. It is the only name that the UBS analysts have ranked as a Sell. Slowing overseas orders and poor domestic agriculture pricing are cited as major reasons. The stock is already down 5.35% year-to-date and may be headed lower. Investors are paid a 2.5% dividend. Investors shorting stock are responsible to pay the quarterly dividend. The UBS price target for the stock is $72. The consensus estimate is at $87. Deere closed Wednesday at $81.80.
DirecTV (NYSE: DTV) makes the Least Preferred list and is Neutral rated. This may just be a case of simple valuation. In addition, it is becoming harder for the satellite TV providers to compete with the bundled packages from the cable companies and the carriers. The consensus target for the stock is $68. DirecTV closed Wednesday at $63.50.
Emerson Electric Co. (NYSE: EMR) is another call that may be a valuation one. Trading at almost 33 times earnings, the stock in relation to peers is expensive. A year ago the St. Louis company took $592 million in goodwill impairment costs because it expected slower growth for its embedded computing and power and DC power businesses. While charges have dropped this year, there may be better plays in the arena. Investors are paid a 2.4% dividend. The consensus price target for the stock is posted at $68. Emerson closed on Wednesday at $67.41, right at the Wall Street target price.
Eli Lilly & Co. (NYSE: LLY) has a very thin product pipeline and may be forced to use acquisitions to bolster products. The company is also facing patent expirations on some of its top selling drugs. The biggest being Cymbalta, which accounts for nearly a quarter of the company’s total revenue. The drug’s sales alone more than double those of Eli Lilly’s next highest-selling drug, Alimta. The consensus price target is placed at $59. Lilly closed Wednesday at $50.49. Investors are paid a 3.9% dividend.
Lockheed Martin Corp. (NYSE: LMT) may be facing sales cuts to the Defense Department, if budget cutters in Congress have their way. The call on the stock may also be one strictly on valuation. Investors are paid a 4% dividend. The consensus price target for the stock is $134, but note that Lockheed closed Wednesday at $136.87.
Target Corp. (NYSE: TGT) may face a consumer looking for the absolute rock bottom on prices this holiday shopping season. The company also needs to step up its online sales if its wants to compete with its big-box retail rivals. Investors receive a 2.7% dividend. The consensus price target for the stock is $70, and Target closed Wednesday at $65.70.
Only one of these stocks is an outright Sell at UBS. However, the rest may be very close to being fully valued. Investors need to spend time reviewing their portfolio for stocks that may need to be sold. There are other value names to buy that may fit the bill, and taking profits on fully valued names may add the capital needed to buy them.