You'll Wish You Sold These 3 Stocks Before Summer

The market at all-time highs, but is now a time to be selling. Joining us now is Mark Likenfeld with the Oxford Club with a list of three stocks he recommends getting out of this May. Mark, so glad to have you here. Really looking forward to this conversation because I think this is a little bit on every investor's mind right now. You see the kind of rally that we've had the last few weeks, the last month, reaching these new record highs. How long can that continue? And should you be taking profits where you can in some areas? So what's your take on the kind of market we're seeing right now? >> Yeah, right now the market is quite strong. I mean some things kind of lurking underneath the surface that are a little bit concerning uh such as breadth. You know, not every stock is participating. So breth isn't quite as strong as I would like to see it. But at this point, I'm not getting too worried about any of those things that you know prices is is the reality at this point. market is quite strong and so until that changes or if some other signals really uh turn negative and we get some real divergent indicators then maybe we start getting a little bit more cautious but right now obviously it is strong and I and I believe it will stay strong. >> All right so this isn't a sell because the market's going to tumble anytime soon. This is more of a timing thing. We're in May right now. Tell me about your theory about stocks in May sometimes. >> Sure. So, there's a a well-known expression, sell in May and go away. And and the reason for that is stocks tend to perform better from November to April than they do May to October. And the data supports that theory going back to 1945, um the S&P 500 and and its proxy before it it started in the 1950s gained about 7% between that November and April period, whereas May to October, it only gained about 2%. But I think the the idea behind selling May and go away, I think people assume that that's a negative period, you know, once May hits the calendar. And that's not true. It's 2% which is, you know, not great. It's nothing special, but it's not negative. And in fact, 66% of the time the period was positive. So the idea I mean sell and may go away is catchy but I don't think it it makes a lot of sense for most investors unless you're a very you know active trader and and you're thinking that you know some of the some of the profits might not be as strong uh in that period but for any kind of long-term investor it doesn't make sense to dump your stocks in May and just try to time the market seasonally like that every year. >> Yeah especially with what's happening in the market right now. Again, you have three names that you are looking at dumping right now, but for very specific reasons with each stock, and we're going to cover a wide variety of sectors, including one really popular AI name that has had a really good runup recently. But you have a very different take on this stock more long-term. I'm excited to get to that discussion at the end of your stock list today, Mark. But I do have another question about the summer slowdown that we typically see in the market where the gains do tend to slow down historically anyway. Do you think the AI trade and all everything that's happening in tech right now uh could totally change that historical pattern simply because we have something that is a historic event happening in the technology right now? >> Oh, so you're saying this time it's different huh? >> Maybe. That's the question anyway. It's certainly possible and and and if it does, you know, one one strong summer doesn't necessarily change the entire thesis of, you know, almost 100 years, 80 years of history, uh where the summer months and and early fall tend to be slower than the overall market. But yeah, this this year uh and and really given any individual year, the numbers can certainly be different. But I think that's a a valid um a valid expectation that the AI trade could make this year different. >> Yeah, I do think that's a great point though, Marggo. Oh, this year's different. Everybody keeps saying, well, this time it's different because of XYZ. And sometimes that's true. Sometimes history does just repeat itself. >> Yeah, there there's an expression this time it's different is the four most dangerous words in uh in the stock market. Yeah, I think it's a wise a wise phrase for investors to keep in mind when they're looking at what's happening in the market right now. Really good advice as always and I'm excited for the advice you have in these three stocks. This is the kind of advice that you share all the time on your newsletter and if you want to sign up to learn more from Mark and his team at the Oxford Club. There's a free sign up to get into his wealthy retirement newsletter community. You can scan the QR code or click the link in the description and sign up to learn more from Mark. Again, always a wealth of knowledge. I'm excited for the names that you have for us today. So, these are three names to avoid or to look at selling right now if you are in them. What is the first one on your list, Mark? >> Sure. And and just to make it clear, I'm not recommending we're selling these because of the whole sell in May idea. It's it was just, you know, a way to kind of introduce this topic and look for stocks that maybe we should be thinking about lightening up on. So, uh the first one is Dexcom. Ticker symbol is DXCM. They make glucose monitors. And when I was compiling my notes for this, my one of the phrases I wrote down was, "Do you want to be right or do you want to make money?" So there could be very valid reasons to own the stock. I mean, you know, glucose monitors certainly a growing business in this country, but the stock has been falling for 5 years. Uh it's it's just on a on a a total downtrend and with no signs of letting up. And there are some fundamental reasons for that. You've got intense competition uh in that space. You've got Abbott Labs is uh its freestyle. Libra platform is gaining market share. Also, they had some manufacturing uh quality quality issues. They got a letter from the FDA about some problems, a warning letter. You've also got GLP-1 drugs that are, you know, revolutionizing uh medicine and uh and and way people are being treated for various diseases, including diabetes. Uh it's certainly helping with diabetes. And sentiment is actually extremely positive on this doc. And and when sentiment gets to extreme levels, I pay attention and and am very often leaning the other way. So in this case, 24 out of 27 Wall Street analysts rated a buy. Only 3% of the float is sold short. So nobody is is bearish on this stock on Wall Street despite the fact that it's in a five-year downtrend and and facing very intense competition. >> Yes, that is exactly what stood out to me on the when I looked at this stock is the analysts are so bullish on this one is over 40% uh upside on the consensus price target. So clearly there are some bullish price targets, bullish expectations on this stock and I know from we talk to you just about every month Mark and I know that you are a contrarian especially with looking at what the analysts have to say. Explain that again for viewers who maybe are joining us and haven't heard you talk before. Why do you look at that bullish sentiment from all of these analysts and decide to go a different route? >> Sure. And so I'm speaking as a former sellside analyst. So, I know how the game is played. And generally speaking, analysts are not willing to stick their necks out. So, if you're looking to cover a stock and all of Wall Street is bullish on it, you're taking a big risk with your career by putting a hold or a sell on it. Because if you're wrong, your director of research is going to come to you and say, "Hey, these 25 other men and women on Wall Street were bullish. They got it right. You said sell it." You know what gives? How did they all get it right? and you got it wrong. So there there's a quite a bit of group think in there uh when it comes to sellside analysts. Additionally, there's still investment banking concerns. So most of these banks are not just pure independent research firms. Uh they're they're investment banks with research arms and they're looking to pick up investment banking business. So, if you're an analyst and you put a hold or a sell on a stock, what's the likelihood that company is now going to come to you when they want to do a bond offering or a stock offering or or any other kind of a deal? It's it's probably pretty slim. So, they really have a lot of incentive to have buy ratings. And when sentiment gets to extreme levels either way, bullish or bearish, then I I usually tend to take notice and and look to see if there's a valid reason to go in the opposite direction. This is so interesting to hear your perspective, especially since you've been on that side of the analyst before. So, thank you for sharing that. I want to look into the research side of this one a little bit more before we move on down the list because I I'm curious to see why do you think what are they looking at in their research? I think you explained it so well about the group think that happens, but is there something about this business or this industry that they might be thinking is going to do well even though the data as you're saying is on the downtrend? Everything about this company is showing it hasn't been on an uptrend for a while. What what might be happening behind the scenes that would make analysts or anyone think that the stock is going to have a recovery? >> Well, I mean it is still a growing industry for sure. You know, diabetes care and diabetes monitoring is certainly growing and and actually to be fair, Dexcom's revenue growth is expected to grow, although that growth is starting to slow down. So, another reason to be uh certainly cautious. You know, we all want growth, but we really want accelerating growth. We don't want growth that is slowing. You know, the analysts are probably looking at a growing industry, a company that's still growing. Valuations are certainly not extreme. And, you know, they're coming to the consensus uh in in you know, a very big way, 24 out of 27 analysts that this stock is is worth buying at these levels. But like I said, do you do you want to be right or do you want to make money? they're they're they could have valid reasons for it, but clearly the market is telling you that that's wrong. Uh and because they're they've been selling the stock for 5 years. So until that change, until we see some kind of change in the in the stock charts on this stock and and the downtrend is over, I think you have to assume that the analysts are wrong. >> I love hearing this take. One more question on this. When you're looking at this company in particular as one to avoid, is it just the execution of this company or does some of this thought process apply to other companies within the same field or within this sector or specifically the execution of this particular company? >> Um, it's really this company because some of the competition they're facing is coming from you know much larger companies like I mentioned Abbott Labs which has its hands in in various areas of health care. So, and whereas Dexcom is is really much more focused on uh these diabetes uh glucose monitors. It's so specialized and you know if they're they're taking fire from these giant companies then uh it's a little bit more difficult for them to kind of maneuver their way out of it then if it if the opposite was true and and Abbott Labs was facing competition in that segment. They have plenty of other areas that uh that are growing and and could maybe offset some of those losses. >> All right, very good. So, we talked about healthcare first. for moving into a completely different sector for the second stock. And I'm going to preview the third stock you're talking about is one that I think is going to shock a lot of people as one to avoid right now. So I'm so excited for the conversation on all of these stocks, but let's get on to stock number two on your list. >> Sure. So this one is Colgate Palm Olive. And people might be kind of surprised be like, what do you have against Colgate Palm Olive? I mean, who even thinks about Colgate Palm Olive? And that's exactly my point. I never see anybody talking about Colgate Palm Olive uh on on Marketbeat, on CNBC, anywhere. Nobody. It's It's not on anybody's mind. It's a It's a consumer staple. You know, I would argue that there is some brand loyalty probably in the toothpaste segment. You know, people who brush their teeth with Colgate probably have been doing so for years and are not looking to switch to Crest or others. But I would also argue that a lot of their other products, I'm not so sure about that brand loyalty. I mean, are you are you going to stick with your Ajax and your Colgate or your Palm Olive dishwashing soap? Especially if times are getting tougher and everything is more expensive at the supermarket and you can save a little bit of money going generic. I don't think there's going to be a lot of brand loyalty there for Colgate Palm Olive. And it's just a stock that I don't see a reason to own it. Uh it's got a 2 and a.5% dividend yield. So, you know, and I'm the dividend guy. I like dividends. 2 and a half% is not enough to get me excited. The stock hasn't gone anywhere in 2 years. So, you know, it it nobody's talking about it. Obviously, with the AI and tech certainly doesn't belong in that category, but even when staples get hot and and there's a more defensive posture. Colgate Palm is not one of the stocks that everybody's talking about. They've had some insider selling this year uh with no purchases in recent years. You know, that should tell you something. It's a big market cap. $69 billion is a large cap stock right now. Small caps are outperforming. So, you know, this isn't something where I'm saying, you know, you should short the heck out of this because it's got all kinds of problems. It's it's just a kind of a who cares. This stock is going nowhere. I don't see any reason to own it. >> Yeah. I think you make such a great argument, Mark, about what's happening in the economy right now. When we see gas prices and the prices of everything, that ripple effect in the economy of everything going up. Does anyone actually have brand loyalty to their dish soap? I don't I don't think that I think you make a great argument there. I think that for most people when uh there's some economic pressures happening, that is definitely a quick area to save a little bit of money. And so that's not great news for Colgate Palm Olive. And I think you also make a great argument about it's just a boring stock that no one's talking about. Momentum investing is is something that I want to talk about here a little bit. When you're talking about this stock, it's similar to what you talked about with the last stock. these stocks aren't really having any success. They're not going anywhere and they've been on that downtrend for a while. What do you look for when you're looking for a stock that does have that momentum and why do you look for that? >> This is going to sound very simple, but you know, I want to buy stocks that are going up. So, I'm not trying to catch the falling knife. I'm trying not trying to find a bottom in a stock and and get that absolute lowest price possible because that's just too difficult. I want stocks that are moving in the right direction. They don't have to be spiking. They don't have to be, you know, ripping higher like like semiconductor stocks are right now and and things like that, but it should be in a in a general uptrend. So, one of the things I I look for from a technical perspective is I want to see stocks above their 200 day moving average. Uh, and that's it's exactly what it sounds like. It's the the average of the stock price over the last 200 days. And if it's above the 200 day moving average, that's a sign of a general uptrend. There's an expression nothing good happens below the 200 day moving average. So, you want to see a stock that is generally moving higher and and above its average. That's a that's a really easy way of just kind of identifying is this stock moving in the right direction? And and I want to be clear, I'm not I'm not against finding stocks that are are deep value that are turning things around that that Wall Street uh doesn't like and and and maybe have been going down. But there's got to be a very strong reason for that. you know, why is this the moment that things are about to turn around uh and and and trading at such a a bargain that I need to be in it right here, right now? Whereas Colgate Palm Olive, the stock's trading uh about I think about 23 times earnings. So, not crazy expensive, but not cheap. And especially when you're looking at low to midsle earnings growth. Uh so you know if if you're earning growing earnings three to five maybe even 6% do you want to pay 23 times earnings? You know I I might look at the stock if the market we were hit a nasty bare market and it fell hard and now it's trading at 16 times earnings and and the dividend was over 4%. Yeah. Then maybe I start getting interested. But at this point uh there's just there's just no reason to own it. >> I guess one reason that there could be to own it is talking about that safety that you mentioned. So, everyone's investing in the AI and the tech stocks. We already hinted towards that the fears of this AI bubble happening. And so, you talk about some of these blue chip safety stocks out there that are just going to be solid no matter what. Why does this one not fit that category? And and talk a little bit about your strategy of owning some of those more boring stocks that are good safety stocks for the risk out there in this really hot tech market. when I'm looking at at stocks that are defensive, let's say, I still want to see some growth, you know, just because they're perhaps a little bit more uh on the boring side because they're not in the tech industry doesn't mean that they have to be absolutely dead in the water and and not have anything to be excited about. So, you know, you can look at healthcare, you know, the big pharma companies, those are are defensive, but they're growing and have some pretty strong dividend yields. You can look at utilities, which is is kind of a an adjacent way to play AI. You know, here you and I have talked about Black Hills, a stock that I I like a lot. BKH, which is a utility based in South Dakota, does a lot of work in Wyoming where data centers. So, that's a very defensive way of positioning yourself and even participating a little bit in in AI growth. Uh, you're getting a good yield. uh where as as as Colgate Palm Olive again there's just no there's just nothing there to be excited about where's other things pharma uh some uh some real estate uh companies you know REITs uh utilities uh and and even just other consumer staples uh you know uh uh Home Depot or you know other things that people are going to need no matter what and they do need toothpaste I just don't know that they that they need Colgate and they don't need speed stick and they don't need Palm Olive dishwashing liquid. >> Yeah, solid teaching here, Mark. Thank you so much for all of this knowledge that you are sharing on how you view investing and some of the strategies that you use. Again, I think this is incredibly valuable information for our viewers along with these specific stock tickers. If you like learning from Mark and you want to hear more from him, make sure to sign up for his wealthy retirement newsletter. It's a free sign up. You can just scan the QR code or click the link in the description and be the first to hear from Mark when he has different stock ideas and insights to share with his newsletter uh subscribers as well. All right, Mark, let's get on to the last stock on this list because this is the most interesting conversation. And unlike the last two charts that we saw, this one actually has some momentum going right now, but you have a very contrarian view on it. >> Yeah, and that's Oracle. And so this is a stock that has come way down from its highs, but has been bouncing recently. My argument is this. Oracle, in my opinion, is going to be the poster child for the AI bubble bursting when it when it eventually does. I don't know when that will be, but I feel very strongly that Oracle is going to be a train wreck when that happens. So we recently had earnings from uh Meta, Amazon, Google, Microsoft. So those four companies announced that they're going to be spending $700 billion in capex capital expenditures this year on building out data centers. And Oracle is also a company that is spending a tremendous amount of money. So they have $250 billion what's called offbalance sheet obligations. Uh and that's to build these data centers. Now these this $250 billion you won't find it on the balance sheet. So, if you're just g giving a cursory glance, you don't see it. Now, they're not doing anything illegal or unethical. It's it's the way that these things are structured. As these data centers come online uh and and get leased, they move on to the balance sheet. But for right now, these are offbalance sheet, but they owe $250 billion. These are contracted, can't get out of it. They owe this money to build these data centers between now and 2030. The problem is they are free cash flow negative because they're spending so much money. Uh this year they're expected to be $25 billion cash flow negative. Next year 26 billion. It's going to be a h 100red billion between now and 2030. That's a lot of money to be bleeding while you have these other obligations. They don't have that much cash to cover it. They have 39 billion in cash. So that means they either have to sell stock or issue new bonds, go further into debt. uh and they and they have 125 billion in debt already. So, they have to get this money from somewhere. It's it either way it's bad for shareholders because they'll either be diluted or they're going to be taking on more debt. Here's the thing. They've got the 250 billion in obligations. They're counting on 300 billion in revenue from Open AI. That's what Open AI has agreed to. What happens if Open AAI can't pay? You know what happens if all the expectations for the amount of compute uh in 2030, the five gigawatts doesn't happen? We don't have the energy. We don't have the water. What happens if that doesn't occur? Well, then OpenAI can't pay their bills. OpenAI also their CFO just uh last week uh reported by the Wall Street Journal told staff that she has doubts about whether the company's revenue growth projections are able to be met. So we're already I mean we're still in the early stages of AI and Open AI is already starting to question whether they can meet their revenue growth which theoretically should affect how much that they can afford to pay Oracle. So I really think Oracle is going to be left holding the bag. You know you look at at the Microsoft and and Facebook and and these other companies, you know, they have so much money uh so much cash. They're they're much more uh financially healthy than Oracle is. And if this starts to come tumbling down, Oracle, like I said, it's going to be a train wreck. >> Yeah, there's just so much money involved. Like you said, that the numbers that you shared there are staggering. This is an incredible amount of money and you really need the bank account of these MAG7 stocks to support that kind of capex spending. Absolutely. Uh and so that makes sense. I think that argument makes sense. The other argument about what if open AAI can't pay is one I think some investors can absolutely see as a possibility especially if they were around during the dotcom days when they saw these companies rapidly growing planning for this success that never actually came um and it didn't make sense on paper and in their books. And so this argument also makes sense too. But there's the other case to be made for Oracle that they do have these contracts coming in. Yes, there's the the risk of will will openai be able to pay. But when they have the contracts coming in, there is demand for what they are building. There's that side of that case too. What do you think about all of the demand that's out there for the data center space that Oracle is working to build? >> Well, I I think for Oracle's specific case, everything has to go right. You know, there's no margin for error. Open AAI has to be able to meet all of its obligations to Oracle. Otherwise, uh like I said, Oracle is going to be left holding the bag. whereas, you know, you look at Microsoft and and some of these other companies that are building out their data centers. They're certainly making a huge commitment to AI and these data centers, but it's not basically the the whole focus of their business at this point. Oracle really kind of changed their business to be, you know, very much focused on this. And uh, you know, that's a that's potentially going to be a very very big problem. And the other thing too, and you think about it, if Microsoft and some of these other companies had to go to the market to raise money, especially debt, theoretically, they should be able to do it much much cheaper than Oracle is or could because they have much healthier balance sheets. So, if Oracle, I'm not saying Oracle can't get the money uh if they have to go uh you know, sell some bonds or whatever, but it's probably not going to be super cheap because their balance sheet isn't great. So that's going to cost shareholders more money is, you know, it's it's going to affect earnings. It's going to affect cash flow. So that's a problem. And then last thing, a little bit of a wild card, but it's something that's out there is you've got the uh Paramount Warner Brothers deal. Now, uh Paramount is run by David Ellison, Larry Ellison's son. Larry Ellison is this the chairman of Oracle and the founder. Larry Ellison has personally backstopped this deal. now by to the tune of $40 billion. If something goes wrong, now Paramount says that they have the financing in place to do the deal. Great. But if something goes wrong, Larry Ellison needs to step in with $40 billion. He probably doesn't have that lying around in cash. He would have to sell stock in order to do that. If this were to occur, if Paramount's financing fell through, you can be sure the hedge funds are going to start pounding Oracle in advance of Larry Ellison having to sell stock and then that would make the stock lower and then Larry Ellison would theoretically be selling stock, but he'd have to sell more stock to raise the funds. So, it could become, you know, a little bit of a uh a self-fulfilling prophecy here if this were to occur. Again, this is this is I don't know about it being a long shot, but it's it's it's not a a central part of the thesis, but it's certainly possible. Again, if if you know we hit a nasty bare market and the financing dries up or what happened, whatever, there is a possibility financing falls through and Larry Ellison has to sell stock to help his son out and uh you know, finish this merger. >> This is so fascinating and this is why you have to pay attention to the broader market and what's happening. you know, even if you're not interested in Paramount and what's happening there, it can impact the stocks that you are investing in. So, that is why we talk about everything on this channel. We share many different perspectives because all of these are insights that can impact in ways that you might not expect. I love that last point, Mark. Thank you so much for the great conversation today and some great thought processes for our investors to think about as they are looking at the market right now and specifically the three stocks you mentioned here today. One point you brought up was about will there be enough energy to make this AI story happen. If you are interested in energy stocks in particular, make sure to check out this video. It's a list of three energy stocks that have real potential in this AI race and two that you absolutely want to avoid. You can watch that video