The stock market rally this year is pushing stock prices higher again, which creates a greater urgency to consider which tech stocks to sell.
Market sentiment drives short-term rallies, setting up investors for potential disappointments. The increasingly worsening economic conditions ahead might lead to companies forecasting weaker results in the quarters ahead.
Investors need to protect their portfolios by finding the tech stocks to sell from companies that have poor business fundamentals. This includes companies that do not make a profit or face a sharp drop in sales. Readers need to watch out for companies led by executives who do not offer a business plan to navigate the tough market conditions.
IBM (NYSE:IBM) touted its solid fourth-quarter performance by citing its hybrid cloud and artificial intelligence solutions. It claims that those offerings differentiated its technology from the competition, but it still is among the tech stocks to sell now.
On the surface, the revenue growth looks healthy. However, it rose because IBM keeps acquiring new businesses. Growth by acquisitions is not a sustainable business model when business conditions risk worsening. The potential for a recession will pressure IBM to cut costs further.
The company will cut 1.5% of its workforce or 3,900 jobs. To achieve a calendar 2023 cash flow of $10.5 billion, IBM may need to reduce its headcount even more. It realized free cash growth from favorable cash tax payments and lower payments for structural actions. However, it spent $2.3 billion to buy eight companies across the software and consulting sectors.
Shareholders might lose patience waiting for IBM to achieve higher working capital efficiency. Recurring revenue from software may slow as corporate customers find ways to cut their costs.
Logitech International (LOGI)
Logitech International (NASDAQ:LOGI) thrived during the 2020-21 pandemic. When the lockdown ended, computer gamers did not need to buy mouse and keyboard peripherals.
The company posted revenue slumping by 22.1% to $1.27 billion in its fiscal third quarter. During the all-important holiday season, Logitech’s introduction of new products did not perform well.
Logitech has 20 new products announced or launched. CEO Bracken Darrell said that G Cloud is a narrow launch, available only in the U.S. first. It will release the platform in Europe and Japan next. Shareholders are taking a risk holding the stock as margin pressures rise.
Inventories stood at $104.5 million. Despite the CEO pointing out the sequential decline, Logitech might need aggressive promotions to sell the excess inventory. This would weaken its operating margins.
Logitech’s discount promotions may not increase sales. Customers may easily find inexpensive substitutes for computer peripherals. Trading at a premium P/E of 22.7 times, this is one of the no-brainer tech stocks to sell.
Marvell Tech (MRVL)
Marvell (NASDAQ:MRVL) is a semiconductor company. Vice-President of Investor Relations Ashish Saran said that it will take a few quarters to return to the $800 million in annualized revenue from the storage division.
The need for storage changed during this product cycle. Previously, personal computer owners needed to switch from hard disks to solid-state drives. This time, cloud customers and data center operations will buy more SSD units later this year. Before that happens, the industry needs to work through the excess inventory.
Marvell has next-generation PCI Generation 5 and Generation 6 rolling out in the next few years. However, investors may consider Marvell as a stock to sell from here. They do not want to invest in short-term uncertainty while waiting for the product launch.
Micron Technology (MU)
Micron Technology (NASDAQ:MU) is a memory chip supplier. In its last quarterly report, it posted revenue falling by almost $2 billion, down by 46.8% Y/Y. In the next quarter, the company expects to lose 62 cents a share.
Micron has plenty of cash that it will use to buy back shares. This will minimize the downside for MU stock but is not enough to stop investors from selling their shares. The company will slow its cash outflow by sending less on capital expenditure. It will delay wafer starts. This will reduce the oversupply of chips on the market.
Tech investors are wary of betting on companies that are not growing. This is a stock to sell while Micron manages the excess inventory, which it expects to peak in the current quarter. It may slash prices, which pressures operating margins.
Consider avoiding or selling MU stock until supply and demand reach an equilibrium in the mid-year.
Palantir Technologies (PLTR)
Palantir Technologies (NYSE:PLTR) posted revenue growth of 22% Y/Y in the third quarter. Customer count grew by 66% Y/Y, which looks impressive at first. Losses mounted on a GAAP basis, compared to a one-cent profit non-GAAP.
Palantir lost $123.87 million in the last quarter. When the tech sector traded at frothy levels three years ago, markets could forgive Palantir paying for growth. Today, tech investors are less willing to speculate on companies that lose money as revenue grows. This is not a sustainable business model. The firm may need to sell shares or issue debt to cover the losses.
Palantir needs to prove its software offering is unmatched by the competition. Until it announces contract deals with sizable dollar amounts, PLTR stock is pure speculation.
Redfin (NASDAQ:RDFN) is a software real estate company. In the third quarter, it posted a GAAP EPS loss of 83 cents. Shareholders will not catch a break from the loss. In the fourth quarter, Redfin expects to report an EBITDA loss of between $58 million and $71 million.
To reduce expenses, Redfin wound down RedfinNow, a home-flipping service. This includes a workforce reduction of 13% of staff. The housing market has major headwinds after the Federal Reserve hiked interest rates throughout 2022. Home buyers have hope. Mortgage rates fell to their lowest point in four months.
Real estate transactions might stabilize with better mortgage rates. Yet Redfin has to invest heavily in digital revenue streams. Gross margins per visit will not increase enough if real estate rebounds only slightly. In the near-term, cost cuts related to its headquarters and operations will not help the stock rebound.
Wolfspeed (NYSE:WOLF) focuses on silicon carbide and gallium nitride (or GaN) electronics. The company posted revenue growing by 24.8% Y/Y to $216.1 million, losing 11 cents a share (non-GAAP) in Q2. It expects to lose $81 million to $88 million in the third quarter.
Wolfspeed expects a weakening business momentum. It used to forecast strong revenue expectations from its materials business. Chief Financial Officer Reynolds said that the company benefits from strong demand in the power devices and materials sector. This is offset by radio frequency markets weakening in the last quarter. Customers are pushing back orders.
Yields from 150 nanometers fell. Wolfspeed resolved those issues, only to face longer cycle times and higher inventory. Shipping rates also slowed, hurting revenue recognition. Equipment spare parts shortages limited output at its Durham fab.
Wolfspeed is a tech stock to sell. The stock trades at a forward P/E of over 100 times. Shares are overpriced at these levels. They are at risk of falling as investors seek to avoid risks.
On the date of publication, Chris Lau did not have (either 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.
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