Investing in companies you know and understand is the best advice I learned when I started to invest. Familiarity with due diligence made the stock-picking process faster and more manageable. And, helped me to avoid investing into stocks to sell. However, knowing the company name alone isn’t the only deciding factor to invest in stocks and keep them long-term.
Technology is making it easier for investors to look at their investments and study their financials. The information helps investors do their due diligence by identifying potential risks and helps them spot where assets have exposure to potentially massive losses. These may be risks from government legislation, poor financial performance or even legal action. Whatever the reason, anything that increases portfolio risk is worth a closer look.
To that end, here are three stocks to sell before the companies’ situations worsen.
The Gap ()
The Gap (NYSE:GPS) is an apparel and retail company with brands like Gap, Old Navy, Athleta and Banana Republic. The company offers clothing, footwear and accessories via its stores, franchise channels and website. GPS also operates its stores in several countries outside the U.S., like Canada, Taiwan, Japan and China.
The Gap’s performance could have been better, and its recent quarter showed its net sales are down by 8% compared to the previous year. The company’s guidance also mentioned how it expects its net sales to decline into low double digits in the 3rd quarter and into mid-single digits for the entire year. One thing to note is that The Gap has a new CEO. However, it’s still a little too early to tell if it’ll translate to improved numbers in the coming year. As a result, I think GPS should be one of the stocks to sell if you have it in your portfolio right now.
Verizon (NYSE:VZ) is an integrated telecommunications conglomerate offering high-quality communications services. The company is part of the “big three” major telecom networks in the U.S. that offer both 4G and 5G data. The company also provides copper-based and fiber-optic networks. At face value, a company of this size may seem an ideal place to grow your hard-earned money. But you might want to step back first.
One of the big issues with Verizon is its use of lead-sheathed cables that may contaminate soil and water. This concern came to light when a Wall Street Journal investigative report cited that the major telecoms have some, if not all, of their network cables wrapped in lead, exposing Americans to hidden health hazards. This has put pressure on Verizon as analysts and industry experts are still determining how significant the impact is to the company and how extensive the potential legal battle could be. In addition, its continuous spending on C-Band poses a risk of elevating its debt levels even further. With no clear indication of the depth and scope of the potential impact, its vicarious spending and the company’s struggle with its competition make it a problematic stock to keep in one’s portfolio.
Johnson & Johnson ()
Johnson & Johnson (NYSE:JNJ) is a pharmaceuticals and healthcare products company that operates in three key segments, consumer health, pharmaceutical and med-tech. The company is mainly known for its brands like Band-Aid, Johnson’s baby powder and Tylenol. Today, JNJ is also one of the leading developers of pharmaceutical drugs. With a long history and extensive achievements in different fields, JNJ has also had bad days.
In 2022, the company reached a settlement of $8.9 Billion in a talc case where the plaintiffs claimed the J&J talc products cause cancer. In July 2022, the company was ordered to pay another $18.8M in damages as the California court ruled in favor of a plaintiff’s claim.
Further, the company is losing U.S. exclusivity of one of its biggest-selling drugs, Stelara. Its patent protection is set to expire and other companies are already developing similar drugs. Lastly, the Biden administration’s bid to lower the cost of prescription drugs put JNJ on the spot. Three of its products, Xarelto, Imbruvica and Stelara are included in the list. This puts JNJ at risk of losing revenue in the coming financial quarters, making it one of our stocks to sell.
On the date of publication, Rick Orford 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