Goldman Sachs Says Sell These 5 Stocks Into Market Strength Now

Investing

Published: May 6, 2020 7:25 am

For longtime investors, the current market is showing some of the most exaggerated and prolonged volatility in years. There is good reason to suspect that it isn’t going away anytime soon. With the COVID-19 issues thrusting almost every asset class into uncharted waters, one thing is for sure. It makes sense to cut bait and sell losers now, because there is no miracle bull market waiting around the corner, despite the big bounce off the March lows.

A series of new Goldman Sachs reports focus on some struggling companies that the firm has rated Sell. While some are not surprising, given the current stay-at-home and lock-down protocols, the mere fact that some of those orders are still in place is reason enough to move on from these stocks.

The analysts have given each stock a change in the firm’s price targets of at least 10%, and investors holding shares, or aggressive accounts looking for new short ideas, should consider taking a long look at these troubled stocks.

Estee Lauder

The drop in store traffic has been difficult for this longtime fragrance producer. Estee Lauder Companies Inc. (NYSE: EL) is one of the world’s leading manufacturers and marketers of prestige skincare, makeup, fragrance and hair care products. Its products are sold in over 130 countries. Brands include Estee Lauder, Clinique, MAC, La Mer, Bobbi Brown, Jo Malone, Origins, Bumble & Bumble, Smashbox, Tom Ford, Aveda, Too Faced and Aramis.

Consensus forecasts for the fiscal fourth quarter, ending June 30, 2020, and the estimates for 2020 and 2021 have been revised. The fourth-quarter earnings estimate has been decreased to $0.07 per share from the previous consensus forecast of $0.73 per share, as has the full-year estimate for 2020, which has been scaled down to $4.48 per share from the previous consensus of $4.56. In contrast, the full year 2021 estimate has been increased from $5.34 per share to $5.40.

Investors receive a 1.1% dividend. The Goldman Sachs analysts raised the price target from $126 to $141, but that is still well below the Wall Street consensus target of $174.60. Estee Lauder stock ended Tuesday trading at $169.94, which was down almost 3% on the day.

The Gap

This well-known retailer has been absolutely hammered by the current circumstances and has furloughed many employees. Gap Inc. (NYSE: GPS) sells private label merchandise through three main retail concepts: The Gap, Old Navy and Banana Republic, along with smaller growth vehicles Athleta and Intermix.

The company also sells its products through its company websites. Most of its international stores are Gap stores, concentrated in Western Europe (France, United Kingdom), Japan, China and Canada. The company has over 3,500 stores worldwide.

Earlier this year, the company canceled a plan to spin off Old Navy into a separate publically traded company, backing away from a plan it said it would pursue about a year ago. Gap noted at the time that splitting the companies would have been too expensive and difficult to achieve.

The retailer has suspended its dividend and drawn down a $500 million credit line. The Goldman Sachs price target fell to $6 from $7. The consensus target price was last seen at $9.18. The last trade for Gap stock on Tuesday came in at $7.45, or down just over 6% for the day.