3 spooky October stocks to dump now

Get rid of defensive issues that performed well in the last month -- before they flicker out.

By Traders Reserve Oct 31, 2013 10:41AM

File photo of an AT&T Wireless store in Philadelphia, Penn. (© Matt Rourke/AP)By Jamie Dlugosch

 

The fear trade worked very well in October. While it has been a great month for investors it has been even better for those who played it safe.

 

The biggest winning sectors so far this month were telecoms and consumer staples. These two traditionally defensive groups have significantly outperformed the overall market. The SPDR Consumer Staple (XLP) is up a 6.4 percent so far this month. The iShares Telecommunication (IYZ) is up 5.2 percent.

 

But that performance is going to fall back to earth in November.

 

The reasons for the outperformance were fairly obvious at the beginning of October, traditionally a tough month for investors. Some of the largest market declines happen in the month.

 

In addition, investors were faced with the debt ceiling debate that at the start of the month was far from being resolved. No wonder market participants gravitated to defensive issues like consumer staples and telecom.

 

Time to get aggressive

Now with those issues behind us look for a more aggressive posture to be taken in November. You’re going to want to sell those defensive stocks and look for beta – stocks that are more volatile than the rest of the market – for the remainder of the year.

 

A year-end rally is likely with little in the way of headwinds. There will be no taper talk until at least next year. As such, bond yields will drift lower further enticing the risk on trade.

 

Here then are three defensive stocks to jettison from your portfolio now:

 

Exxon Mobil (XOM)

I get that there is a renaissance in the oil industry – mainly a boom in domestic production. That doesn't mean owning a vertically integrated monster oil name like Exxon Mobil makes sense. In this market it doesn't make sense. Investors gravitated to the stock thanks to its near 3 percent dividend. The best case scenario is that Exxon shares gain 5 percent in the next year. Add the dividend and you have a solid 8 percent return. That doesn't cut it in a risk on environment. Investors made 3 percent on this name alone in October. Look for weaker returns to close out the year.

 

AT&T (T)

One of the biggest winners in October was AT&T. The stock gained more than 7 percent in the month. Clearly investors were attracted to the company's 5 percent dividend yield. They also got a stock that beat earnings estimates for the third quarter. That defense made sense in a month filled with fear.

 

Expect the opposite for the remainder of the year. From a valuation perspective AT&T is simply unappealing. Analysts expect the company to grow profits by 8 percent in 2014. At current prices shares trade for 15 times 2013 estimated earnings. That’s flat out spooky. Clearly investors have bid up the share price as they chased the yield, but as the fear trade abates look for AT&T to underperform the market for the rest of the year.

 

Procter & Gamble (PG)

If you ever want to gauge the fear level in the market look no further than a stock like Procter & Gamble. This slow growing consumer staple behemoth gained nearly 8 percent in October. That just isn't right.

 

If you own the stock you should cash out those big gains immediately. What you got in one month is what you can normally expect in a year out of this company. Going forward I would expect some sort of reversion to the mean. The 3 percent dividend is nice and all, but not if the stock retreats from current levels. With the company expected to grow profits by single digits and shares trading for 19 times current fiscal year estimated earnings, I'd stay far away from this spooky stock.


Jamie Dlugosch does not own or control shares in any issues mentioned in this article.

 

More from Traders Reserve

14Comments
Oct 31, 2013 11:20AM
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I will retain my 800 plus shares of ExxonMobil, as a solid, virtually guaranteed return of a total of 8% is just fine.
Oct 31, 2013 11:33AM
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I have to disagree.  It is always wise to keep a position in these types of stocks in one's portfolio and these are not going to collapse by any means.  And I'm not so sure about the prospects for a much higher market going forward into next year.  We still face a debt ceiling and a budgetary crises, the US Government is still more willing to pour money into overseas issues and I don't look for much upside in US employment.  AT&T and Exon Mobil are keepers, for now. 
Oct 31, 2013 10:59AM
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.........and 8 % is not good enough??  I'm happy with that!!
Oct 31, 2013 12:05PM
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With their great dividend and cash position, XOM and ATT are safe for the long term and a great part of a retirement portfolio.  I don't understand how anyone would think that 8% return and almost no risk is a bad bet.
Oct 31, 2013 12:43PM
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XOM AND PG I'VE OWNED FOR YEARS THEY ARE DIVIDEND ARISTOCRATS... THIS WRITER IS A FOOL...BOTH OF THESE STOCKS HAVE  RAISED IT'S DIVIDEND EACH YEAR FOR AT LEAST 25 YEARS...ALSO XOM HAS BEEN BUYING BACK IT'S STOCK FOR YEARS

Oct 31, 2013 1:43PM
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Please Note: This advice is for Traders NOT Investors.
Oct 31, 2013 1:26PM
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Why do idiots get to recommend actions with out telling us their holding or shorts.  Because Traders Reserve is a group or whatever, they get to PUMP AND DUMP or in this case the opposite.  The stocks mentioned are defensive or not, they pump out dividends and steady earning.  I'll go fish.
Oct 31, 2013 2:19PM
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Gee ... the previous article in this slot said Exxon increased output 18% last quarter.  Some ineffective giant!  You should do half as well.
Oct 31, 2013 2:23PM
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I have lost track of how many articles I've read throughout 2013 on MSN counseling to "dump AT&T".  I held, & when the stock drops, I'll buy more, as an investment.  The poster commenting on the potentially self-serving motivation behind what an author/trader writes is true.  Use your own judgement & research.  These articles are just one data point in a sea of info.
Oct 31, 2013 5:32PM
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asinine...i'm adding to xom every month i'm alive...would never sell t although I haven't bought any in years...pg?...I've done a lot better recently with col, although I think any good American investor in consumer non-staples better have a bunch of both in his bundle...articles like this make me laugh out loud...there'a always some nincompoop who thinks he can out-maneuver the markets with the old buy-sell 'active management' strategy...folks, the only way to accumulate real wealth is to start buying stoicks like there when you're young, remain disciplined, accumulate more, broaden your base as you grow older to variety and risk lessening, and reap the rewards - growth with income...avoid these types of 'advisors' like hiv and gonorrhea...  
Nov 1, 2013 12:17PM
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P&G actually showed better overall performance in the 1Q of Fiscal year 2014 but if you look at some of the major segments net sales results are worrying for investors according to analysts: http://goo.gl/q4B5n1
Oct 31, 2013 1:16PM
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