I’m generally the positive type. Still, as I look at the market, the math isn’t on my side. Inflation remains near 40-year highs and yet employment also remains at historically high levels. As a result, the Fed will keep raising interest rates. So it’s time to think about finding stocks to sell for profits.
Here’s something to consider. If the polls are accurate, the midterm elections will be good for the GOP. A good showing by the GOP would also be bullish news for the market because investors like gridlock. So why am I getting ready to deliver some bearish news?
Because a rally by the market, even one of the Santa Claus type, is exactly what the Federal Reserve doesn’t want. The Fed is posturing like a parent who says to his child, “Don’t make me turn this car around.” The central bank needs the economy and the market to cool down, but investors may not cooperate.
That means now is the time to pick stocks on which to take profits. It’s admittedly hard to find stocks that have gained ground this year. But here’s my list of stocks to sell before they give back this year’s gains.
Lockheed Martin (LMT)
First on my list of stocks to sell is Lockheed Martin (NYSE:LMT). The shares of the defense contractor’s stock have soared 28% this year. War is good for the defense business. But to be fair, LMT stock was already up about 10% for the year before Russia’s invasion of Ukraine.
Typically, defense stocks perform well when the Republicans hold at least one chamber of Congress. But since 2013, the trajectory of LMT stock has been bullish no matter what party is in power. And I would imagine this time won’t be different. That’s because there are enough geopolitical flashpoints that should keep the demand for the company’s products steady.
So as a long-term play, Lockheed Martin is likely to do just fine. That’s why it’s OK to take a little profit in the name now and look to buy it back at a more appealing entry point.
But it’s a good idea to hold onto the shares until the name’s ex-dividend date which is on Nov. 30, 2022.
Chevron (NYSE:CVX) has weathered the current administration’s war on fossil fuels very well., as CVX stock is up 48% for the year. And the recently announced cuts by OPEC will benefit the company and CVX stock.
Nevertheless, a recent article published by Seeking Alpha does raise concern about treating Chevron as a momentum stock. While it’s likely that a Republican majority in one or both houses of Congress will push the government to allow more drilling in the U.S., that probably will not be an easy battle for the GOP to win. And even if it does win that struggle, the move towards renewable energy is not going away.
Meanwhile, ramping up oil production isn’t like flipping a light switch; it will take time. And before you know it, the 2024 general election will be here. Oil and politics is a volatile combination.
CVX stock is another name that should be a long-term hold. Nevertheless, if you take some profit in the shares before the year ends, you may be thanking yourself in 2023.
Cigna (NYSE:CI) is up 28% for the year, which proves that the demand for health insurance remains strong. This seems to be particularly true for the Medicare Advantage plans offered by Cigna. The stock’s success also indicates that healthcare is a non-cyclical industry.
Cigna will report its earnings in early November. If the last year is any indication, investors are likely to be pleased with what they hear.
But that is not likely to be enough to offset a challenge that arose on Oct. 19. That’s when the federal government filed a lawsuit that alleges Cigna submitted false diagnoses which exaggerated patients’ illnesses. The government contends that it paid out tens of millions of excess Medicare funds to Cigna over the last ten years.
Whatever the outcome of the case, it’s not likely to be resolved quickly, which will likely weigh on CI stock. Consequently, now may be a good time to take some CI shares off the table.
Merck & Co. (MRK)
Next on my list of stocks to sell for profit is Merck & Co. (NYSE:MRK). Investors and consumers probably are aware of the company’s Keytruda drug which generated $17 billion (over 25%) of the company’s revenue in 2021. And the success of the company’s flagship oncology drug is not the only reason that MRK stock is up 25% for the year.
Merck recently reported positive top-line results from a Phase 3 study of sotatercept, a potential treatment for pulmonary arterial hypertension (PAH). MRK stock reached a 52-week high on Friday.
Will the latter trend continue for a long time? The company will have a chance to help the stock’s momentum continue when the firm reports its earnings on Oct. 27.
Merck’s bottom line has surpassed analysts’ average estimates in the last four earnings reports. If that happens again this week, the stock may move higher. Investors can use any gains to take profits on the name.
I could consider Hershey (NSYE:HSY) as one that got away. I’ve had it on my watchlist for some time, and HSY stock has had a good run in 2022, as it’s up 18%. Further, the company even pays a pretty sweet dividend that currently pays out over $4 per share annually. And with Halloween and then Christmas coming up, this is truly one of the best times of the year to be a candy company.
So why do I have it on this list of stocks to sell? There’s at least one sign that the shares’ run could be ending.
The stock price is consolidating around its 10-, 20-, and 50-day moving average. The company will get a chance to lift its stock when it reports its Q3 earnings in early November.
On the other hand, the stock price could drop in the wake of the company’s results. Consequently, now may be a good opportunity for investors to take some profit in HSY stock now. Later, investors, including me, could potentially buy the shares at a lower price.
Deere & Company (DE)
Deere & Company (NYSE:DE) doesn’t fit the usual profile of stocks on which investors should look to take profits. It’s only up about 11% in 2022, but it has been significantly higher earlier in the year. Maybe the volatility of DE stock is the result of investors already taking profits in the name during one of the market’s bear-market rallies in the last few months.
Another InvestorPlace columnist, Will Ashworth, recently put DE stock on his list of agriculture stocks to buy. And over the long haul, I agree that the name should do well.
But the stock market is being driven by short-term thinking, as investors are eyeing quarterly earnings like a hawk for any sign of the anticipated earnings recession. And in August, John Deere reported results that came in below analysts’ average estimates, putting extra pressure on the company to report strong earnings next month.
Deere is undoubtedly the present and the future of farming. But the stock doesn’t have all the characteristics of a defensive name. So I see no problem taking some profit selling it for some profits.
Bloomin’ Brands (BLMN)
Bloomin’ Brands (NASDAQ:BLMN) stock is clinging to a gain of slightly less than 1% . But the stock has had two impressive rallies this year, and I suspect there could be another one in store if the market performs well for the rest of the year.
However, among high-end restaurants and fast-casual restaurants, there have been some winners and some losers this year. And one area that is not working in favor of Bloomin’ Brands is its margins.
With BLMN stock trading at a price-earnings ratio of 33 times and its stock approaching a 52-week high, it’s fair to say that the shares are overvalued. That makes this a good time to take some profits in BLMN and wait for better days.
On the date of publication, Chris Markoch had a LONG position in CVX. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.