3 Cinderella stocks to sell before midnight strikes

These big 2013 winners delivered a profit windfall, but are due for a 2014 disappointment.

By InvestorPlace Dec 10, 2013 9:51AM

Cars sit parked outside of a Safeway Inc. grocery store
© Ben Nelms/Bloomberg via Getty ImagesInvestorPlace on MSN MoneyBy Jeff Reeves


Everybody loves a good Cinderella story, where a shabby housemaid gets to be the belle of the ball.


But don’t forget that one of the most important parts of a Cinderella story is the graceful, well-timed exit. After all, nobody wants to be seen stumbling around in rags while their high-class wheels turn back into a pumpkin.


Keep this in mind if you're sitting on some of these Cinderella stocks of 2013 that delivered a king’s ransom in profits. . . but really are just peasants dressed up in fancy clothes. If you get greedy and hang on to these picks too long, things may not end so happily ever after.


Here are three high-flying Cinderella stocks to sell before midnight strikes and they crash and burn:

Delta Air Lines (DAL)

Industry: Airlines
Year-to-Date Gain: 134%


Airline stocks are tough investments. The industry is characterized by regular bankruptcies, expensive pension costs, costly regulation and volatile fuel costs.

But one airline’s pain always seems to be another’s opportunity. And as American Airlines (AAMRQ) grappled with bankruptcy in the last year, Delta has been in the middle of a big turnaround.


Delta emerged from Chapter 11 itself in 2007, and that troubled period was quickly followed by the Great Recession. DAL stock languished, simply trying to hold things together. . . but now it has gotten its groove back and is back above where DAL started trading post-bankruptcy in 2007.


That’s thanks to a restructuring of its pension plan, cost cutting and modest revenue growth. According to Standard & Poor's, fiscal 2013 could see four times the profits it saw in 2010 should projections hold, and more than double the earnings of last year!


Heck, Delta even announced an ambitious dividend and buyback scheme worth more than $1 billion -- something unheard of in an industry characterized by regular bankruptcies and debt restructurings. What’s not to like?


A lot, actually. Because investors should remember that all these improvements from the bottom cannot be replicated going forward. Delta posted a quarterly loss as recently as 2012, and a lot of the gains this year were part of the snap-back from the bottom.


There just isn’t a lot of organic growth in airlines. . . and even if there is a cyclical recovery, a lot of optimism is now priced into DAL stock. The pressures of competition and higher fuel costs could really eat into margins next year, where the company is predicted a modest 10% earnings growth and less than 4% revenue growth.


That dividend yields less than 1% -- so income is hardly a reason to hang on to DAL stock. Sell now before this high-flier comes in a for a rough landing in the new year.

Best Buy

Sector: Specialty retail
Year-to-Date Gain: 252%


Best Buy (BBY) didn’t stand out to anyone as a company with a bright future at this time last year. The embattled big-box store has its hands full amid e-commerce competition and “showrooming,” and many left it for dead.


That pessimism was clearly overdone, however, as Best Buy has learned how to adapt and survive in this environment.


Although sales have actually declined for six consecutive quarters, Best Buy has managed to stage a pretty substantial turnaround by slashing costs. In fact, BBY stock will close this fiscal year with its first annual profit since 2011, and is forecast to then grow earnings a modest 9% again next year.


But investors shouldn’t confuse efficiency with growth, and if Best Buy was oversold a year ago, it could very well be overbought now. It’s undeniable that part of the pop in share price is thanks to founder Richard Schulze making noise about taking the company private, and a short squeeze that allowed the stock to double in a few months to start the year … but what will lift BBY stock in 2014?

Safeway

Sector: Grocery stores
Year-to-Date Gain: 82%


Grocery stores are hardly an exciting business. The grocery game is notoriously low-margin thanks to frugal shoppers and high competition, the nature of a national distribution network for perishable foods can be maddening, and most grocery chains are regionally landlocked with little room for growth.


So what gives with Safeway (SWY) and its rip-roaring run?


Well, to start the year, roughly one-third of outstanding SWY stock was held by short sellers -- that is, investors betting against the company. But rumblings about a potential buyout either for all or part of the company sent the bearish investors scurrying for the exits and boosted the stock. From January to April, SWY tacked on more than 60%.


Those rumors returned later in the year with talk of yet another buyout lifting shares more. As a result, after a sleepy summer, Safeway stock has jumped up about 25% in the last few months to give it one of the best returns in the entire S&P 500 year-to-date.


But there’s simply no way this can last. Either Safeway will be bought out or it won’t -- and while there is a small chance of a premium above current pricing, it’s not enough to lock yourself into this investment considering the other opportunities out there.


In addition to these, we look at two more potential "Cinderella stocks" to sell here.


More From InvestorPlace

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not own a position in any of the stocks named here.

15Comments
Dec 10, 2013 12:45PM
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Oh, really?  The 90 day wonders are coming home to roost.  Now for the remainder of the QE1 through 1,000 $84 billion a month of counterfeit money comes crashing down.  Inevitable. 
Dec 10, 2013 12:09PM
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Well I do have to agree with the Author....These stocks/companies have had some terrific runs and appear to be in overbought territory...

But in some cases, buyers and investors should be looking back at where they came from...?

2 and 3 "baggers" on cheap stocks, usually spell trouble sooner than later...

And yes, now is probably a good time to sell and move on...Greed seldom pays in the long run.


And Twitter, don't have any idea what is really driving it the last couple days, but any holders of the recent IPO have made a butt-load of money or added to the booty, the last two days.

Dec 10, 2013 11:21AM
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SO A GROUP SELL ORDER MEANS TO REALLY JUST BUY STOCK?
Dec 15, 2013 7:57PM
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Well, I still owe Veteran Lender for his investing rule that price per share should never be over 7 to 10 times earnings per share.  Wise advice.

 

And that's why I love Conoco.

 

 

Dec 14, 2013 4:04PM
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We need an :"ask your doctor " ad quick!!!!!  Need to sell this stuff before midnight!  There should be an "ask your doctor" pill already on the "ask your doctor " box to make everyone feel like winners and to rush out and buy these stock TODAY!  If not, the Legal Drug Lords should be able to cook up a concoction in an hour or so and distribute it to their legal drug dealers in time to sell out before midnight.  The legal drug pushers are likely closed today but the "clinics" that are open and the hospitals should be able to push the pills through TODAY.  If not, just pay for them and they can probably put you on a backorder for them.  But, "ask your doctor" TODAY even if by phone, for the "ask your doctor" pill that makes you feel comfy to invest in shaky  stocks.  But, "ask your doctor" TODAY!!!!
Dec 10, 2013 1:59PM
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I agree with the author, these are basically all low margin, low growth companies.  That's usually not a recipe for long-term stock success.
Dec 14, 2013 1:37PM
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I must say that SAFEWAY does not surprise me. Have you felt their latest SCAM at their Pumps.

They advocate for spending a specific amount of dollars to gain 10 cent 20 cent 30 cent or more cents per gallon off from 1 gas tank fill. Sounds great right, King Scoopers is doing it too. Yet at SAFEWAY GAS PUMPS in fine print on the pump, one which needs your glasses to find it and read it and if you don't you won't know that they are charging you 10 cents more on the price to gain your reward.

 

This is a SCAM and SCAMS ARE ILLEGAL in the US of A!

 

Thus once I found this out 2 weeks ago, I refuse to shop at Safeway anymore with the exception of bananas for theirs are better than King Scoopers! 

 

THUS KNOW THAT AS YOU SHOP AT SAFEWAY AND SPEND MORE TO GAIN THAT GAS DISCOUNT THAT THEY SCAMMING YOU AT THE PUMP BY RAISING THE ADVERTISED GALLON PRICE BY 10 Cents!

Dec 10, 2013 12:11PM
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I'm quite sure V_L could find something wrong with the NEW rope, he is going to hang himself with.
Dec 10, 2013 11:42AM
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Today's headlines:
- Stocks edge lower on lingering stimulus doubts (it didn't work, who doubts it?)
- US set to approve ban on high-risk bank trades (only AFTER they have killed the world)
- Pension crisis endangering Chicago's future (screw those workers who trusted government)
- Europe opens marathon talks on bank rescues (but not ACT on closing them down)
- Homebuilder Toll Brothers profits decline (fewer clueless McMansion buyers?)
- Lululemon founder steps down as chairman (why not just unplug them?)
- Oil rises near $98 on US/China economic data (the higher it goes, the lower we go)
- 10 cities with the biggest paychecks (nuke targets?)
- 3 of the worst nightmare stocks in 2013 (just 3? Take away QE and they all were) 

Are we getting the idea that BANKS need to go yet? That Fed-funded BANKS are destroying the world? That all the world's woes revolve around BANKS doing BAD because the Fed funds them and they don't do CRAP to recover us? Isn't way past the time to END BANKS AND THE FED? Of course it is. Put YOUR Kool Aid glass down and crash BANKS before they end the world. 
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