The month of September tends to be a bearish period for the stock market, but this is no ordinary year.
The market has experienced a strong rebound in the summer months after falling to historical lows earlier in the year. Investors have gained confidence in the equity markets despite the current global health crisis and raging unemployment due to the Federal Reserve’s policy decisions to support the U.S. economy.
But as market volatility continues, some stocks are dominating this rough economic landscape while others are making headlines for the wrong reasons. Here are five stocks to sell or stay away from in September:
— Nordstrom (ticker: JWN)
— Host Hotels & Resorts (HST)
— Ruth’s Hospitality Group (RUTH)
— Hertz Global Holdings (HTZ)
— American Airlines Group (AAL)
Market capitalization: $2.46 billion
Year-to-date performance (as of Aug. 31): -60%
Like many other retailers, the American luxury department store chain has had a troubling year.
In Nordstrom’s latest financial earnings results for the second quarter ending Aug. 1, the retailer reported net sales of $1.78 billion, a 53% decrease from the same time last year. Its selling, general and administrative expenses accounted for 47% of net sales compared with 31% for the same period last year, indicating the company’s expenses are weighing down on its profit potential.
The decrease in sales was driven by store closures as a result of the pandemic for a large portion of the quarter. Nordstrom’s CEO, Erik Nordstrom, explained that the company’s first-quarter priorities were to build liquidity and it’s now focusing on “market share gains and profitable growth,” but JWN’s inventory increased in July despite the price markdowns in preparation for its Nordstrom Anniversary Sale, a special event offering deep discounts.
What caused the second quarter to flop was the fashion retailer’s choice to move its Nordstrom Anniversary Sale. The timing of the event could have positively impacted sales by 10-percentage points, shifting gains from the second to third quarter for the large retailer.
Nordstrom sales fell far deeper compared with its retail competitors: Macy’s ( M) reported a $3.02 billion in revenue during its first quarter that ended on May 2 and Kohl’s ( KSS) reported $2.4 billion in revenue in its most recent May 2 earnings report.
Host Hotels & Resorts (HST)
Market cap: $8.2 billion
YTD performance: -39%
Host is the nation’s largest lodging real estate investment trust, known as a REIT, with holdings that include popular hotels and resort names like Marriott ( MAR), Ritz-Carlton, Westin and Hilton ( HLT), among others.
The REIT’s revenues in the second quarter ending June 30 sunk 93% to $103 million compared with $1.48 billion during the same time last year.
As of July 30, 2.7 million group rooms have been canceled, or $1 billion in canceled group revenue, and more cancellations are expected throughout the second half of the year, according to its most recent earnings release.
The REIT is continuing attempts to increase its capital position by suspending its quarterly dividend and stock repurchases while reducing expenses, but HST has already cut expenditures by 70% in the second quarter. Monthly cash burn is $110 million, a high level considering its weak quarterly revenues.
In its latest move, HST is working toward redefining its operating model “to generate higher levels of profitability at lower levels of occupancy,” said James F. Risoleo, president and CEO of Host, in a July 30 press release. But despite HST’s efforts to improve its flexibility, the unprecedented nature of the economy poses harsh challenges to the travel industry.
Ruth’s Hospitality Group (RUTH)
Market cap: $375.2 million
YTD performance: -50%
The restaurant developer and operator closed all its Ruth’s Chris Steak House’s dining rooms in the U.S. during April and gradually shifted most of its operations to takeout and delivery in the months that followed. These adjustments impacted the company’s revenues during the first half of the year.
During the first quarter of 2020, total revenues decreased 9.4% to $108.5 million. In the second quarter, total revenues further fell to $28.4 million, compared with $110.2 million during the same time in 2019, according to its earnings release.
RUTH started the year with a stock price of $22 per company share, sank to its lowest price to become a penny stock in March at $4.16 per share and has now slightly recovered with its current stock price hovering around $10. Due to the many unknowns surrounding the global health crisis, investors could expect continued volatility.
To increase its financial flexibility, the company has halted all new restaurant construction, suspended its quarterly cash dividend and share repurchases, and has a weekly cash burn rate of $1.2 million per week, per RUTH’s second-quarter earnings report.
The costs of operating under limited capacity is putting a strain on one of the country’s most popular restaurant’s ability to reach pre-pandemic profit levels, let alone potentially make ends meet for the rest of the year.
Hertz Global Holdings (HTZ)
Market cap: $235.8 million
YTD performance: -90.3%
The rental car company has taken a hit on many fronts: In the first quarter of 2020, HTZ suffered a $356 million loss in revenue. The second quarter of 2020 saw global revenue decline 67%, and for the year, total revenues for U.S. rentals were down 70%.
Hertz’s competitor, Avis, experienced a 67% year-over-year decline and an adjusted net loss of $388 million in the second quarter of 2020 but may be well-positioned to weather the storm, as it quickly adjusted its operations by cutting more than $2.5 billion in annual expenses and sold more vehicles in June, “exceeding the prior year by 30%,” to improve its liquidity position.
HTZ filed for bankruptcy in May citing declines in revenues, future bookings and travel demand. The company is strapped with $22.4 billion in liabilities, which far exceeds its assets of more than $1 billion — its need for cash is an understatement.
American Airlines Group (AAL)
Market cap: $6.9 billion
YTD performance: -54.5%
The travel industry is arguably the industry hardest hit as a result of the pandemic, and American Airlines is feeling the pain. Describing the financial results of the company’s second-quarter results, chairman and CEO Doug Parker said, “This was one of the most challenging quarters in American history.”
Here is a summary of some of its most painful losses:
— Second-quarter net loss of $2.1 billion.
— A cash burn rate of $55 million per day.
— Passenger demand fell significantly below 2019 levels.
In addition to increasing its cash position, AAL has a hard-line focus on prioritizing safety. The company has expanded its cleaning procedures and its practices are said to exceed the guidelines issued by the Centers for Disease Control and Prevention. These efforts, which are being put forward by other airlines as well, are necessary but may not be that relevant when it comes to the stock’s performance.
AAL started 2020 trading at $29 and fell by more than 50% year to date to around $13 per share.
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