You should never buy or sell a stock simply because the share price has gone up or down. The price tells you nothing about the business. Too many investors sell a stock too early only to miss out on extraordinary gains to come. Or they buy a stock because it is rising only to see it crash soon after.
However, if an investor understands a company’s business before he buys the stock he will know better when to sell. Warren Buffett famously said the best time to sell a stock is never. But even the Oracle of Omaha himself sells stocks. That’s simply an aspiration, not a hard and fast rule. It’s to give the investor the proper mindset he should be buying a stock with the intention of holding it for years, not days or weeks.
Still, there are times when you should sell a stock. For example, if its business model suddenly changes for the worse with little hope of turning around, that would be a time to sell. Video store chain Blockbuster was an example. It failed to keep up with the times and streaming sent it to bankruptcy. That’s the exact reason Netflix (NASDAQ:NFLX) was a buy. It saw the changes coming and added streaming to its repertoire. It’s now the premier streaming service.
With that in mind, the following are three stocks to sell before 2024 begins. You won’t regret getting them out of your portfolio now.
Upstart Holdings (UPST)
Online lending marketplace Upstart Holdings (NASDAQ:UPST) is enjoying something of a Santa Claus rally with shares rallying 89% higher over the past month. While it got a boost from its ability to mix AI and lending, there’s nothing to be so merry about.
Upstart uses AI to assess credit risk. It says its models are better than humans at determining default risk so it allows lenders to make more loans to people with lower credit scores and do so at lower risk. Unfortunately, that hasn’t always proved to be the case and a high interest rate environment made lenders wary of loaning out more money. Originations dropped 34% last quarter on top of the whopping 64% in the prior quarter. Upstart decided to underwrite more loans itself. That puts a greater amount of risk on its own back. It’s also expanded into auto loans which increases its risk further, as well as business loans and home equity lines of credit.
Subprime borrowers behind on their auto loan payments 60 days or more are at their highest levels in almost 30 years. Mortgage delinquencies are now on the rise again too. Upstart says current economic conditions contributed an incremental risk of 64% to the repayment performance of Upstart-powered loans.
With so much risk piling up on the marketplace and the lender, investors should use the opportunity of the end-of-year bounce to exit their Upstart position.
Nikola (NKLA)
With the stock of electric truck maker Nikola (NASDAQ:NKLA) trading at $0.85 a share there may not be many investors left to sell. But if you’ve hung on in hopes of a rebound you should sell now and redeploy whatever money you have left into a more productive stock.
Nikola has problems that can’t be corrected soon and you will have dead money that could be put to more productive use elsewhere.
The biggest problem facing the EV stock is it won’t be producing any more vehicles until sometime next year following a vehicle recall. Although it has 277 non-binding orders from 35 customers for its Tre hydrogen fuel-cell EVs, it can’t make them and doesn’t have the cash to do so. So it plans a $100 million stock offering along with a $200 million convertible debt offering. That gives it a quick infusion of cash but at the expense of existing shareholders. They will be diluted now and later on when the debt is converted into stock.
Nikola is already wallowing in losses and that will only get worse. With so many better EV stocks to bet on, there’s no reason not to sell your NKLA stock now.
Sea Ltd. (SE)
It’s not a penny stock, but Singaporean online gaming and shopping platform Sea Ltd. (NYSE:SE) is short-circuiting almost as bad as Nikola. Shares are down by 32% year-to-date and off by 60% from their 52-week high. Investors are hoping for a turnaround here as well, but there’s no reason to think one will materialize.
For a so-called growth stock Sea Ltd.’s sales expansion is anemic. Its revenue only grew by 5% this year. While its e-commerce sales grew by 22.3% year-over-year, digital entertainment revenue collapsed by 33.7% year-over-year. And it’s not going to grow more because Sea is cutting sales and marketing expenses. They were down by roughly 35% during the first nine months of 2023.
At the same time, its provisions for credit losses are rapidly expanding. The problem can potentially wipe out its banking business. Sea Ltd’s one-time digital entertainment cash cow is also getting milked dry quickly. Adjusted EBITDA for the division declined to $234 million compared to $290 million a year ago. Yet it’s an $18 billion company that’s only producing $260 million in net income. With the stock at nearly a 52-week low, dumping Sea Ltd.’s stock before the end of 2023 would be a good idea.
On the date of publication, Rich Duprey did not hold (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.