There have been gains and losses across the board in 2020, but even with investor optimism, there are some U.S. equities that have been undoubtedly suffering.
Despite pandemic fears slowly subsiding with the economy reopening, there are still residual impacts that will continue to weigh on certain sectors.
Here are five stocks that made the selling list this month to consider removing from your holdings:
— Hertz Global Holdings (ticker: HTZ)
— Nordstrom (JWN)
— American Airlines (AAL)
— Coty (COTY)
— Macerich (MAC)
Hertz Global Holdings (HTZ)
The stock price for this well-known car rental chain is now trading below $1 per share. Due to the pandemic-induced crisis, there is no revenue coming in. Yet creditors are still demanding their debt payments, which compelled the company to file for Chapter 11 bankruptcy protection. This action frees a company from the threat of creditors’ lawsuits while it reorganizes its finances.
The rental car company is in a tight spot as it tries to avoid bankruptcy. Hertz has cut overhead expenses by reducing its workforce and extending furloughs, with a portion of those furloughed being laid off.
Following the filing, renowned investor Carl Icahn sold his entire position in Hertz at a loss, which was a major hit to the company’s largest shareholder. Icahn took a loss of more than $1.8 billion.
In addition, last week, the New York Stock Exchange proceeded with filings to delist Hertz due to their bankruptcy filing.
Hertz has an alarming debt issue, holding debt of about $19 billion. The company has been unable to make a profit for the last two years, with its 2018 and 2019 financial statements showing negative net income for both consecutive years. Even though Hertz holds cash on hand in the amount of $1 billion, the company’s debt heavily exceeds its cash holdings.
Looking at the stock’s historical performance, HTZ has been on the decline for years.
The rental car industry has been sharply impacted due to a halt on travel and subsequent fall in demand in the rental vehicle business. As a result, the value of Hertz’s used cars is falling, making it increasingly difficult for the company to make profits and meet debt obligations on its loans.
Since the beginning of the year, Nordstrom stock has underperformed compared with the S&P 500 Index. The retail giant has been taking measures to manage losses, such as cutting costs and reducing its inventory.
The luxury department store chain’s stock closed out the first quarter with a loss, adjusted for non-recurring costs, of $2.23 per share versus 23 cents earnings a year prior.
When stores started to close in mid-March as a result of the pandemic, the retailer experienced a 40% decrease in sales at the end of the first quarter ending on May 2.
The company has also taken steps to increase its cash position. In late March, Nordstrom suspended its quarterly dividends starting at the second quarter, halted share buybacks and borrowed $800 million in April to stay financially afloat.
“We successfully strengthened our financial flexibility by increasing liquidity, lowering inventory by more than 25% from last year and significantly reducing our cash burn by more than 40% from March to April,” said Erik Nordstrom, CEO of Nordstrom.
Nordstrom announced in late May that it will be closing 19 of its luxury department stores overall, 16 full-line stores and three Jeffrey specialty boutiques to optimize existing resources and build up its cash pile.
The retail industry as a whole has been suffering. Looking into the future, Nordstrom has difficulty estimating the lasting impact the store closures will have on its retail business and overall financial health.
Coty is a cosmetics group that manufactures and sells beauty products worldwide, owning some of the most well-known beauty brands such as CoverGirl, Clairol and Wella. Last year, the company partnered with Kylie Jenner, taking a 51% stake in her company — which includes Kylie Cosmetics and Kylie Skin — for a value of $600 million.
The downside: Last Friday, Forbes published an article saying Jenner provided misleading financial information about her cosmetics brand and ended up kicking her off its billionaire list. This is troubling because Coty has been heavily advertising Jenner’s brand on a global scale.
More troubling, a law firm has opened a recent investigation into whether the beauty company’s executives have been involved with securities fraud, urging shareholders to be cautious about their holdings in the company.
Last week, Coty shares dropped 13% but closed higher Monday at $4.39; however, the stock has a year-to-date decline of 68%.
As a result of recent events, Coty’s senior management team restructured, with Coty chairman Peter Harf stepping in as the new CEO to replace Pierre Laubies.
Coty sales have also been on the decline due to the pandemic, and revenues are expected to keep falling. COTY has been demonstrating weak performance and is very volatile, making it a prime sell candidate.
American Airlines (AAL)
American Airlines is a major airline that has been losing massive amounts of money, which is why it’s a stock to sell this month. The airline continues to reduce capacity while spending cash on operating expenses and posting weak sales during the first months of the pandemic.
The stock price decreased by 63% year to date to around $11, with a first-quarter loss of $1.1 billion. American holds long-term debt of $21.5 billion, and with low revenue expectations even after 2020, this airline faces deep credit-risk concerns.
Current cash on hand is $3.7 billion, which is low compared to the company’s debt obligations. American Airlines has taken steps to reduce monthly operating expenses, expecting to cut 30% of its management staff by about 17,000 people.
The airline needs to fill around 80% of all flights in order to break even, which is the highest required load factor among airlines. Due to pandemic fears still looming, aircraft capacity won’t come close to those expectations.
Airline companies and the travel industry as a whole have been hit hard as a result of the pandemic and are facing financial threats that may have lasting impacts.
Macerich is a real estate investment trust traded on the New York Stock Exchange that focuses on leasing, management, acquisition and development of regional malls in the U.S.
For the past five years, the stock has seen a steady downfall, underperforming its sector. Furthermore, collection rates from retail stores are low due to closures.
“Regional mall” REITs are down 60.2%, according to Nareit data published in April, making it the property segment most affected by the pandemic. REITs are usually characterized as safe assets with consistent dividends being paid to investors, but if sales continue to be low as the economy starts to reopen, Macerich may have a difficult time collecting rent.
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