7 S&P 500 Stocks to Sell in September Before They Crash & Burn

Year to date, the S&P 500 and other leading market indexes have been strong. However, thanks to interest rates, the Federal Reserve, and growing fears of a recession, we’ve seen some cracks in the armor. In fact, according to Forbes, we could see a recession in the first half of 2024, or possibly later this year. While that’s the last thing any of us want to hear, we can’t ignore the potential. That being said, you may want to start protecting your portfolios – which we can start doing by getting rid of risky bets, including these top S&P 500 stocks to sell.

S&P 500 Stocks to Sell: Royal Caribbean (RCL)

Royal Caribbean Cruises (NYSE:RCL) is one of the world’s prominent cruise companies. It’s also one of the top S&P 500 stocks to sell.

In July, the company revenues of $3.5 billion – a 61% jump year over year. Operating income jumped $772 million from an operating loss of $219 million, year over year. Demand still looks solid for the company, as well. Even better, the cruise industry could see a massive pick up in passenger volumes. All could lead to double-digit growth for Royal Caribbean.

However, while its stock has since recovered, Royal Caribbean is still struggling with debt. At the end of the second quarter, the company had long-term debt of just over $18.7 billion. Debt it owes within a year is up to $1.7 billion. All of which carry sky-high interest rates. Worse, as noted by Motley Fool contributor Brett Schafer, “Every year from 2023 to 2027, the company will need to pay back at least $2 billion in loans, which will need to be funded by free cash flow. Royal Caribbean has only ever generated more than $2 billion in free cash flow one year in its history, 2017.”

PulteGroup (PHM)

It’s no secret that rising interest rates are making life more difficult for the housing market. Mortgage rates have surged back to levels not seen in 20 years, which has negatively impacted housing affordability and demand.

Granted, housing stocks, such as PulteGroup (NYSE:PHM) have been strong, up 103% over the past year. However, that upside may not last. All thanks to soaring interest rates, and homeowners – with low-rate mortgages – refusing to move. For people with a locked-in 4% mortgage, it’s just too expensive to sell their property and get a 7% mortgage on a new house.

For the foreseeable future, sustained high-interest rates are going to slam the market for both new and existing homes. That being said, investors should take their wins in PHM before they disappear.

S&P 500 Stocks to Sell: Advanced Micro Devices (AMD)

Advanced Micro Devices (NASDAQ:AMD) has been a popular semiconductor stock this year thanks to artificial intelligence (AI). It’s also another one of the top S&P 500 stocks to sell.

While AMD is seen as strong competition to Nvidia (NASDAQ:NVDA), it won’t dethrone the tech giant just yet. Even with its new AI chip, AMD has to contend with Nvidia’s significant lead in the AI race, as noted by CNBC.

And, unlike Nvidia, AMD hasn’t been able to turn its AI ambitions into cold hard cash as of yet. Perhaps AMD will start making serious dough in AI in 2024. In any case, AMD stock is awfully risky after its 70% year-to-date rally despite its sharply weaker earnings results.

Old Dominion Freight Line (ODFL)

Old Dominion Freight Line (NASDAQ:ODFL) is a leading Less-than-Truckload (LTL) cargo operator.

Investors generally associate trucking with volatility and low profitability. It’s not a great industry for long-term returns. However, Old Dominion has bucked this trend by focusing on the less-than-truckload niche. This is a specialty business that allows for higher profit margins and more predictable cash flows from operations. We can see its progress in the stock’s 50% move over the last year.

Unfortunately, Old Dominion’s earnings haven’t kept up with the stock price. While the ODFL stock trades at about 34x forward earnings, that’s a bit rich for a trucking company. Worse, with a potential recession on the horizon, ODFL stock could be heading for a major breakdown.

S&P 500 Stocks to Sell: Nucor (NUE)

Steelmaker Nucor (NYSE:NUE) is a bargain at less than 15x forward earnings.

However, there’s a good argument that the steel industry is dramatically overvalued due to the pandemic-induced buying boom. As people bought new appliances, cars, and other steel-hungry durable goods, this caused demand to surge and profit margins to soar.

When buying patterns return to normal — let alone when a recession hits — Nucor’s profits will likely slump dramatically. Nucor’s revenues jumped from $22.6 billion in 2019 to $41.5 billion last year. It’s reasonable to assume much of that revenue surge won’t last as economic conditions cool off.

Similarly, Nucor’s peak earnings per share (EPS) prior to 2020 was $7.42 per share, which it earned in 2018. Needless to say, the $18/share or so that Nucor will earn this year is unlikely to be a sustainable figure. As the economy slows down, Nucor’s profits will plunge, and the share price is likely to follow suit.

American Airlines (AAL)

American Airlines (NYSE:AAL) is one of the United States’ biggest air carriers. As we saw with Royal Caribbean, American Airlines also had a rough go during the pandemic. It had to issue tons of new debt and stock to stay afloat. In fact, American Airlines’ long-term debt load surged from $7 billion in 2012 to $21 billion prior to the onset of the pandemic and up to more than $30 billion today. If you count leases, pensions, unearned revenues, and other obligations, the firm’s total long-term liabilities climb well past $45 billion.

Many traders may look at American Airlines with its market capitalization of just $9.3 billion and think there’s a bargain here. But American Airlines’ troubles are just the tip of the iceberg compared to the firm’s far larger debt and other obligations.

With this context in mind, American Airlines is not cheap at all today as it makes perhaps $2 billion or $3 billion in annual profits during an economic expansion. Profits will be much less — or perhaps return to red ink entirely — during the next recession. AAL stock may seem cheap at first glance, but once you consider the balance sheet, it actually turns out to be frightfully expensive.

Iron Mountain (IRM)

Most REITs have struggled over the past year. There are two primary reasons for this. First, rising interest rates make it more expensive to service a REIT’s debts. And in a world where risk-free fixed income pays higher and higher interest, dividend stocks have to offer higher yields to remain competitive.

Despite the heavy selling across the REIT industry, Iron Mountain (NYSE:IRM) has so far proven immune. In fact, IRM stock is surprisingly up 28% year-to-date, making it a standout among its peers. Iron Mountain’s business of document storage and security is a better one than many REITs. It isn’t facing the same structural issues as, say, office or shopping mall owners. However, the results still haven’t been that great. Earnings this past quarter slightly missed expectations, and funds from operations (FFO) declined a bit year-over-year.

Granted, Iron Mountain’s results aren’t terrible by any means. But it’s rather odd that IRM stock is up so much while having flat-to-slightly down earnings.

On the date of publication, Ian Bezek 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.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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