UBS Lists Stocks That Should Be Sold Now (JCP, SWY, RSH, COP, IRWD, MTH, LPX, KSU, AAPL)
One of the biggest complaints for years about Wall St. research was that no firm ever said when to sell. Back in the halcyon days of the late 1980s, and through the 1990s, many stock analysts were very cozy with the companies they covered and the “Chinese Wall” between banking and research was often very thin or nonexistent. Those days, and many of those people, are long gone from Wall St.
Most larger Wall St. firms have their lists of top stocks to buy. We cover these lists for our readers as it gives them a chance to not only see the top stocks to buy, but how the lists have changed. Here is our story on the top UBS stocks to buy in which the firm sees 25% upside.
The current second-quarter report of top picks from UBS A.G. (NYSE: UBS) also includes its analysts “least preferred” list of stocks. Those stocks have an average potential downside of 20%. We screened the list for the stocks with the largest downside potential on a percentage basis. This list may provide investors with a rogues gallery of names to sell short, take profits in, or to just get out of. The following are the “least preferred “ stocks at UBS.
Struggling retailer J.C. Penney Co. Inc. (NYSE: JCP) makes the list. Run by former Apple Inc. (NASDAQ: AAPL) retail guru Ron Johnson, this iconic American retailer has suffered from a constant change of marketing and advertising strategies — none of which has worked. The UBS target price is $10. The Thomson/First Call estimate is $15. Potential downside to the target is 32.8%.
With low margins and growing competition from discount retailers, supermarket chain Safeway Inc. (NYSE: SWY) goes in the shopping cart of stocks to sell. The UBS estimate for Safeway is $19. The Wall St. consensus estimate is $24. Potential downside to the target is 27.9%.
RadioShack Corp. (NYSE: RSH) joins the struggling retailer club. From an outdated name to a horribly competitive niche of retailing, this once successful franchise may be headed for the stock graveyard. The UBS price target is $2. The consensus estimate is close at $2.50. Potential downside to the target is 40.5%.
Integrated oil and gas giant ConocoPhillips (NYSE: COP) is a large cap name that makes the list. America’s third largest oil company spun off its refining, pipelines and chemical divisions a year ago. Some think that was a mistake. The UBS target for the stock is $50. The consensus estimate is $63. ConocoPhillips pays a 4.40% dividend. Potential downside to target 17.2%.
Small cap biotech company Ironwood Pharmaceuticals Inc. (NASDAQ: IRWD) may have the proverbial bull’s-eye on its back. With limited revenues and high cash burn, this stock already has almost 25% of the float sold short. The UBS price objective is $11.50. The consensus estimate is $18. Potential downside to the target is 37%.
Home builder Meritage Homes Corp. (NYSE: MTH) may have moved a little ahead of itself. While UBS likes its position in the marketplace, the firm feels that the earnings just do not justify the stock price. The UBS price target is $25 and the consensus estimate is $47.75. With a potential downside to the target of 47%, this is a very contrarian call.
Paper and packaging giant Louisiana-Pacific Corp. (NYSE: LPX) makes the least preferred list. Trading near a 52-week high and also riding the home building boom, the stock is another “fully valued” candidate. The UBS target is $15. The consensus estimate is at $21. Potential downside to the target is right at 30%.
Rounding out the list of stocks to sell is railroad transport Kansas City Southern (NYSE: KSU). It is trading at 26 times earnings, and the UBS team thinks that is extremely high multiple to pay for a railroad. The exposure to a very volatile Mexico is also a concern. The UBS price target for the stock is $83. The consensus is also below the current price at $98.50. The potential downside to the target is 23%.
We remind readers that selling stocks short can be a very risky and rewarding venture. UBS might just be telling its clients that more weakness is ahead in these. We also want to remind investors considering the strategy that short sellers are responsible to pay the dividend or the distribution of names they sell short if that dividend is paid during the time they actual short the stock. The old short selling adage of “stocks often go up like an escalator and down like an elevator” is usually spot on. Especially if you pick the right entry point.