beyond meat stock –

Pure play businesses are becoming safer investment options in this uncertain time of COVID-19. These corporations that offer one product can be great investments. But what is the complete picture of pure play? This TradingSim article will explain what a pure play stock is and how their business models work. This article will also pick the top 10 pure play businesses investors can choose.

What is a pure play stock?

A pure play business focuses on selling only one product. For example, Starbucks (NYSE:SBUX) stock just specializes in coffee. Tiffany &Co. (NYSE:TIF) stock focuses exclusively on luxury jewelry. Many pure play businesses are value stocks because they are able to excel in one field.

What is a pure play business model?

A pure play business model helps a company stand out. For example, if a company like Tesla (NASDAQ:TSLA) only produces electric cars, it can have an advantage over Ford (NYSE:F). Tesla noticed its difference from other car stocks in its IPO prospectus.

“We design, develop, manufacture and sell high-performance fully electric vehicles and advanced electric vehicle powertrain components. We have intentionally departed from the traditional automotive industry model by both exclusively focusing on electric powertrain technology and owning our vehicle sales and service network,” said Tesla in its IPO launch.

As opposed to diversified stocks, pure play stocks focus on one specific sector. While Coca-Cola(NYSE:KO) is purely a beverage company, Pepsi (NASDAQ:PEP) has food and drink products.

Tesla stands apart with its business model

Because Tesla focuses on electric cars, Tesla can have more control of production of its vehicles. Founder Elon Musk noted that being selective about Tesla’s car production helped the company stand out.

“If we could have [mass marketed] our first product, we would have, but that was simply impossible to achieve for a startup company that had never built a car and that had one technology iteration,” said Musk.

In addition to dominance in production, Tesla’s business model means that the corporation can have more direct interaction with customers. In opposition to car companies that sell through dealerships, Tesla sells its vehicles directly to customers in its own. That enables Tesla to reach a large number of customers.

Tesla also offers its own charging stations for its vehicles. That insular production of electric vehicle accessories also helps the company’s singular pure play business model.

Is pure play a good investment strategy?

As an investment strategy, pure play can be effective. There are some advantages to having a pure play stock strategy. For beginning investors, pure play stocks can have an analysis that’s easier to understand.

What are the benefits of trading pure play stocks?

If a trader is investing in Coke, they just have to follow trends in the beverage industry. With Coca-Cola stock, the company’s revenue stream and business model are easy to understand.

However, with Pepsi, there are many different food and drink sectors to track. In a diversified stock, there are varied metrics to measure. Because they tend to dominate certain industries, if they perform well, they can pay off larger dividends for investors. In a bull market, pure play stocks can enjoy a longer period of high returns, especially if they’re growth stocks.

What are the risks in trading pure play stocks?

While there are benefits to pure play, there are downsides as well. If an industry is struggling, then a pure play stock will likely tumble. After COVID-19 shut down the cruise industry, Royal Caribbean( NYSE:RCL) stock fell by double digits. Exposure to one industry can also hurt investors in a bear market when stocks are falling. Pure play investing can be riskier because there is less protection against a decline in stock prices.

What are the top 10 pure play stocks?

The following stocks are some of the most effective pure play businesses. These stocks can pay off for investors with their focus in a specific industry.

1. Netflix

Netflix(NASDAQ:NFLX) is perhaps the most successful pure play stock in the stock market today. Even though the company started as a DVD rental service , the company moved on to dominate the streaming entertainment space.

When Netflix started, co-founders Reed Hastings and Mark Randolph wanted just wanted to create a mail-order DVD rental service.

“We were sitting down having coffee one morning in Santa Cruz and we were talking about whether or not you could mail a DVD in a first-class envelope or not,” Randolph remembers.

Netflix already was a pure play DVD service. When movie downloads became popular, Hastings knew that he wanted Netflix to evolve to streaming video.

“Movies over the internet are coming, and at some point it will become big business,” said Hastings in an interview.

“We started investing 1 percent to 2 percent of revenue every year in downloading, and I think it’s tremendously exciting because it will fundamentally lower our mailing costs. We want to be ready when video-on-demand happens. That’s why the company is called Netflix, not DVD-by-Mail,”, added Hastings.

Even though Netflix added 16 million subscribers in Q1 2020, Hastings noted that he was uncertain how Q2 2020 earnings would be in the future. With the economy re-opening, Hastings thinks there will be fewer subscribers staying at home.

“We don’t use the words guess and guesswork lightly. We use them because it’s a bunch of us feeling the wind and it’s hard to say. But again, will internet entertainment be more and more important over the next five years? Nothing’s changed in that,” said Hastings.

Analysts bullish on Netflix stock

Despite Hastings’ uncertainty, many financial analysts think Netflix will increase its subscriber base. Analysts at Jefferies rate Netflix as a buy. Because of the company’s international growth, Jefferies analysts wrote in a note to clients that Netflix should perform well in Q2 2020 even if subscription rates increase.

“Importantly, our revenue growth assumes a 15% subscriber CAGR[ and just a 3% ARPU [average revenue per user] CAGR(compound annual growth rate), mitigating the bear thesis that sizable price hikes are necessary,” wrote the analysts.

The Jefferies analysts also noted that they believe that Netflix’s positive operating cash flow will help the corporation remain profitable.

“We believe NFLX[Netflix] will soon reach sustained FCF[free cash flow] profitability, in which it will be able to self-fund content and become less reliant on tapping the capital markets,” wrote the analysts.

Netflix’s pure play business model of focusing on streaming entertainment has paid off. Investors looking for a successful pure play stock can pick the streaming company’s stock.

2.Coca-Cola

Coca-Cola (NYSE:KO) is a classic example of a pure play business. The corporation focuses exclusively on selling its syrup to other bottling companies to manufacture.

Coca-Cola produces about 500 beverages. As customers turn away from sugary drinks, the company is branching out into energy drinks, bottled water, tea, and coffee. By putting more of the bottling and manufacturing responsibilities to outside sources, Coke has become very profitable.

Coca-Cola impacted by nationwide shutdown

While Coca-Cola is a top pure play stock, the nationwide shutdown has hurt Coke’s sales. Many Coke sales are through restaurants and sporting events. With the closure of restaurants and cancellation of games, Coke’s revenue dropped 1% to $860 billion. Coca-Cola’s CEO, James Quincey, said that with the coronavirus outbreak shutting down businesses, he wasn’t sure how the company’s future results would be.

“The ultimate impact on the second quarter and full-year 2020 is unknown at this time, as it will depend heavily on the duration of social distancing and shelter-in-place mandates, as well as the substance and pace of macroeconomic recovery. However, the impact to the second quarter will be material,” said Quincey.

Quincey also noted that despite the sluggish results, Coca-Cola is poised to recover.

‘We’ve been through challenging times before as a company, and we believe we’re well-positioned to manage through and emerge stronger,” said Quincey.

Coca-Cola a strong pure play stock to financial experts

Even though Coca-Cola’s Q1 2020 results were disappointing, financial experts still rate Coke stock as a buy. Financial analyst Nicholas Johnson is bullish on the beverage company.

“Despite solid first-quarter results, management opted against issuing formal guidance, and its commentary seemed to portend a pretty ugly second quarter. Nevertheless, we remain confident in the Coca-Cola system’s strategic advantage and believe the right tactical competencies are in place to allow the firm to navigate disparate dynamics across its territories,” said Johnson.

HSBC analyst Carlos Laboy also rates Coke as a buy. He believes that Coke will recover as European and American bottlers re-open their factories. He believes the bottlers are “poised to accelerate their growth contribution [to Coca-Cola’s profits] as they grow into market developers with better tools and a richer service culture.”

Warren Buffett values Coke’s pure play stock

Legendary investor Warren Buffett is a long-time Coke investor. Buffett’s Berkshire Hathaway has $18 billion invested in Coke. Buffett owns 9% of Coca-Cola’s stock because it’s a globally renowned brand with a substantial dividend payout of 3.5%. As a pure play beverage company, Coke’s low debt and reliable dividend makes it a stable choice for investors.

3.Chewy

Chewy(NYSE:CHWY) is a pure play e-commerce company that focuses on a subscription-based service for pet food and supplies. Chewy’s business model is to add a personal touch to its customer service. They’re so hands-on with their customers that they even send portraits to customers of their pets.

Since the company went public, pet parents have helped Chewy have a strong Q1 2020 earnings report. Sales grew 46% year-over-year to $1.62 billion. Chewy CEO Sumit Singh commented on the pet food company’s robust revenue report.

“We had a strong start to 2020 with first-quarter net sales increasing 46 percent year-over-year and gross margins expanding 50 basis points,” said Singh.

Singh observed that more customer spending through its subscription service helped Chewy’s profits.

“Higher spending from our existing customers and growing Autoship sales reflect strong business momentum as more customers continue to shift their spending to Chewy, driving increased basket size and higher repeat purchase activity,” said Singh.

Singh also spoke about how Chewy is poised to expand with more people adopting pets.

“We are proud to be the e-tailer of choice for millions of new and existing pet parents during this unprecedented time. Chewy is well-positioned to thrive in this expanded marketplace, and we remain focused, as always, on our mission of becoming the most trusted and convenient online destination for pet parents (and partners) everywhere,” added Singh.

With an increase in pet adoption during the quarantine, Chewy stock enjoyed a whopping 75% increase so far this year.

Chewy stock a buy for RBC Capital

As a successful pet supply pure play stock, Chewy is a buy for financial analysts. RBC Capital’s Mark Mahaney rates Chewy as a top pure play stock in a note to clients.

“Importantly, CHWY’s [NYSE:CHWY] results and outlook suggest to us that the company is at an inflection point and that it is a structural winner from the COVID crisis,” wrote Mahaney.

Mahaney expects Chewy stock to rise as pet adoptions continue to increase.

“Pet product purchases have meaningfully accelerated their online adoption, and we don’t expect a reversion,” said Mahaney.

Some financial experts neutral on Chewy stock

While RBC Capital is bullish on Chewy stock, some financial analysts are neutral on the stock. Jefferies analyst Brent Thill rates Chewy stock as a hold despite its positive earnings report and its“position as a key beneficiary of a shift to online in essential categories (like pet) driven by the pandemic.”

Thill rated Chewy stock as a hold because of the company’s reduced full-year guidance with the unpredictability of the economy later this year. His hold rating is “likely a reflection of Chewy being pragmatic during heightened uncertainty.”

Chewy’s a pure play stock that investors can pick for results. Its dedicated customer service and promising profits make Chewy stock a top pure play

4.Beyond Meat

Beyond Meat(NYSE:BYND) is a pure play meat alternative producer that is performing well. Despite the COVID-19 crisis diminishing sales in restaurants, chief marketing officer Mark Nelson touted the positive Q1 2020 results.

“We maintained our solid top-line momentum while driving our best-ever performance in production unit cost per pound,” said Nelson.

“Despite near-term challenges ahead stemming from the ongoing global health crisis, our improving operating results and continued strength of our balance sheet give us added confidence about the Company’s long-term financial position,” added Nelson.

Analysts bullish on Beyond Meat

Because of Beyond Meat’s positive Q1 2020 results, many financial analysts are bullish on Beyond Meats stock. Steven Strycula of UBS rates Beyond Meat stock as a buy. He asserts that because many restaurants were closed during the quarantine, Beyond Meat can still be sold in grocery stores.

“With food service industry traffic down, BYND plans to lean-on its retail platform to drive growth and is repurposing production capacity to meet demand,” wrote Strycula in a note to clients.

He also believes that Beyond Meat will also benefit from rising beef prices.

“BYND[Beyond Meat] seeks to use value packs & increased trade to stimulate trial, particularly as beef prices spike,” added Strycula.

Beyond Meat is a pure play plant-based meat alternative that has found success by catering to customers who want healthier eating options.

5. Trulieve Cannabis

With a rise in cannabis sales during COVID-19, (CSE:TCNNF) Trulieve Cannabis (CSE:TRUL) is a pure play pot stock that’s outperforming its competition. The Florida-based company has built a loyal customer following by promptly responding to customers’ needs. CEO Kim Rivers notes that Trulieve’s pure play business model works because Trulieve reaches out personally to customers.

“One of our mottos at Trulieve is that we grow one patient at a time. In Florida, our patient base are some of the most vulnerable population, and it’s really important that we respond to them not only in a timely manner, but in a very compassionate manner,” said Rivers.

“I think it’s incredibly important, especially in this current phase, for us to be very, very connected with our patient base and responsive in setting that high level of customer service experience. I’m very proud of our team and our ability to be responsive in real-time to patients,” added Rivers.

Trulieve profits soar by triple digits

In Trulieve’s Q4 2019 results, the pot producer earned $79.7 million. That amount shows a whopping 146% increase over Q4 2018. Rivers commented on the positive revenue report.

“Our fourth-quarter results reflect our strong brand and customer loyalty, which were key factors in our success for the year. We continued to grow our footprint in Florida and made significant strides building out the infrastructure needed to maximize efficiencies and achieve economies of scale,” stated Rivers.

Rivers also touted Trulieve’s positive cash flow and expansion of dispensaries.

“Trulieve’s execution of key fundamentals and financial discipline coupled with market share growth this quarter contributed to positive free cash flow, further strengthening our balance sheet and validating our financial stewardship,” added Rivers.

Trulieve a pure play buy for Wall Street analysts

According to financial analysts, Trulieve stock is a strong buy. Many analysts polled by the TipRanks website say shares should rise by 68%. With a bullish outlook from investors and an effective pure play business model, Trulieve could be a top marijuana stock for investors.

6. Salesforce

Salesforce(NYSE:CRM) is a pure play customer relationship management solution company. The company’s successful business model comes from its early adoption of cloud technology. In addition to offering its own cloud services to customers, Salesforce added customers by letting them build apps on Salesforce as well.

Salesforce’s CEO, Marc Benioff, noted that he wanted to make cloud technology and customer relationship technology easily accessible.

“This [cloud delivery] model made software similar to a utility, akin to paying a monthly electric bill. Why couldn’t customers pay a monthly bill for a service that would run business applications whenever and wherever?”

The corporation had a positive Q1 2021 earnings report with $4 billion in revenue despite the coronavirus outbreak.

Salesforce stock falls but is still top pure play business

Benioff spoke about the company’s results.

“Our results, amidst this global crisis, demonstrated our ability to execute at speed, innovate at scale and the strength of our business model,” said Marc Benioff, Chair & CEO, Salesforce.

Benioff also noted that the company is still making changes during the COVID-19 era.

“We made long-term investments in keeping our employees safe, supporting our customers, delivering crucial innovation like Work.com, and helping our communities with PPE, grants, and technology. The pandemic showed us that digital is an imperative for every company, and we’re confident Salesforce will continue to accelerate as we bring our customers into the new normal,” said Benioff.

Jefferies rates Salesforce as a buy

Jefferies analyst Brent Thill believes Salesforce is a buy. He thinks that the company can continue to be profitable after its recent purchase of analytics platform Tableau. The deal was reportedly worth $16 billion.

“We[Jefferies] believe we saw a meaningful acceleration in M&A in 2019, and CRM needs to take a breather to digest the Tableau deal, the biggest one so far,” said Thill.

Thill thinks that Tableau’s integration with Salesforce is critical before Salesforce acquires more businesses.

“CRM needs to make sure the integration between the various clouds is seamless before embarking on more M&A,” said Thill.

Thill notes that Salesforce stock will grow because of more businesses using cloud technology because of work-from-home orders.

“We[Jefferies] continue to be positive on CRM and believe there is ample value to unlock. [The long-term] pipeline is robust. We also believe COVID-19 has been accelerator driving more businesses to the cloud, which should benefit CRM,” said Thill.

Salesforce a SaaS pure play stock pick

Salesforce is a successful pure play SaaS( software-as-a-service) company. Morningstar financial analyst Dan Romanoff also agrees that Salesforce is a top pure play stock because of its business model.

“We[Morningstar] believe Salesforce.com represents one of best long-term growth stories in software. After introducing the software-as-a-service model to the world, Salesforce.com has assembled a front-office empire that it can build on for years to come,” said Romanoff.

Like Thill, Abramoff believes that Salesforce’s pure play business model will grow once the corporation integrates the services of Tableau, its latest acquisition.

Salesforce should “benefit further from natural cross-selling among its clouds, upselling more robust features within product lines, pricing actions, international growth, and continued acquisitions,”.

“The tight integration among the [company’s] solutions and the natural fit they have with one another makes for a powerful value proposition,” added Abramoff.

Salesforce has been helping businesses keep track of customer service in the cloud for years. Its customer relationship management dominance makes Salesforce stock a top pure play choice for traders.

7. Starbucks

Starbucks stock (NYSE:SBUX) is a pure play business that dominates the coffee industry. The Seattle-based coffee company made rare gourmet coffee an everyday treat in its business model. The fast expansion of stores and diverse mix of coffee flavors all helped Starbucks become a top pure play stock.

Starbucks has mixed Q2 2020 results

Because of the COVID-19 crisis, Starbucks CEO Kevin Johnson said that revenue fell to $6 billion. Many Starbucks stores closed down during the pandemic, so Starbucks’ sales slowed.

“As a result, consolidated revenue in Q2 was $6 billion, reflecting a 5% decline compared to prior year, primarily due to a 10% contraction in comparable store sales globally, ” said Johnson.

Chief financial officer Patrick Grismer also noted that US sales declined because of the pandemic.

“Revenue for our Americas segment was flat in Q2 relative to the prior year at $4.3 billion as incremental sales from net new store growth of 3% over the past 12 months was effectively offset by a 3% decline in comparable store sales,” said Grismer.

While Starbucks had disappointing results, the coffee behemoth did have an increase in its customer loyalty program Starbucks Rewards. Grismer noted that the program had an increase in members.

“Of note, during the second quarter, 90-day active Starbucks Rewards members, our highly routinized, highly engaged and loyal customer base with whom we can directly communicate digitally, increased to 19.4 million in the US, up 15% from a year ago,” said Grismer.

Some analysts rate Starbucks a pure play buy

Despite the sales slump, Broyhill Asset Management, a boutique investment firm, is bullish on Starbucks stock. Broyhill is optimistic that its Chinese stores will re-open soon.

“Starbucks (SBUX) was one of the first US companies to warn investors of the financial hit from the pandemic. But after closing nearly 80% of its stores in China by early February, the company had already re-opened roughly 95% of those stores by March month-end,” said Broyhill.

“We established a position in the stock near it’s lowest valuation in years as we gained confidence that the company’s China stores would fully recover in a couple quarters. In the near term, mobile orders (which represented ~ 80% of China’s sales mix in the last weeks of February) should put a floor under US sales, while the resumption of development in China, with best-in-class unit economics, provides a multi-year runway for expansion,” added Broyhill.

Financial expert Matthew McCall also thinks Starbucks stock is a buy even if Starbucks stock is falling. He wants investors to buy the dip because it’s “a high-quality, well-run company. That should put it on investors’ radar for buy on dips.”

Because Starbucks is a massively popular brand that has many loyal customers, investors can choose Starbucks stock as a pure play coffee stock.

8. Activision Blizzard

Activision Blizzard(NYSE:ATVI) is a gaming pure play stock that has outperformed during the quarantine. With many people stuck inside, Activision monthly users rose 18% . Gamers rushed to play the new Call of Duty game and played mobile games like Candy Crush more as well.

Because of the rise in gaming, the company had a positive Q1 2020 earnings report. Dennis Durkin, Activision’s chief financial officer, spoke about the results.

“Activision revenue was $519 million growing 64% year-over-year. Growth was driven by Call of Duty: Modern Warfare and Warzone in-game revenues, strong game sales of premium Modern Warfare and the addition of Call of Duty Mobile. Operating income was $184 million with an operating margin of 35%, 12 percentage points higher year-over-year,” said Durkin.

While some many say Activision is too dependent on a few gaming franchises like Call of Duty and World of Warcraft, CEO Bobby Kotick thinks the pure play gaming business strategy is still profitable.

“At a time when so many forms of social interactions and entertainment experiences have been shut down, we’re providing entertainment with positive impact for hundreds of millions of people through our games,” said Kotick.

Activision a buy for financial experts

Because of Activision’s dominance as a pure play stock, many financial analysts rate Activision as a buy. Todd Gordon, managing director at Ascent Wealth Partners, is bullish on Activision stock.

“It’s[Activision] a $46 billion market cap. They’ve got franchises like Call of Duty and Candy Crush. They have a better share of mobile gaming. Activision is well-represented across multiple platforms including PC, console, gaming, stuff like that. So, we hold Activision in our global growth portfolio,” said Gordon.

Danielle Shay, director of options at Simpler Trading, also thinks Activision is a pure play stock that investors should choose. She thinks that Activision is a buy because there is an increase in gaming during the quarantine.

“More people are staying at home, they’re looking for entertainment and options at home, and with the client base that these two companies [Activison and another gaming pure play stock Two Play] already have, I think this is going to be fantastic for them,” said Shay.

With a focus on popular games and increased customers, Activision is a successful gaming pure play stock.

9. Peloton

Like Activision, Peloton(NYSE:PTON) is a pure play company that’s benefitted from the pandemic shutdown. The exercise bike company’s stock has skyrocketed 100% over the last few months as it attracts more customers.

Peloton’s business model comes from combining an old-school exercise bike with new technology of subscription-based online classes. Founder and CEO John Foley noted that Peloton’s pure play business model ties fitness with tech.

“Peloton is so much more than a Bike — we believe we have the opportunity to create one of the most innovative global technology platforms of our time,” Foley says. “It is an opportunity to create one of the most important and influential interactive media companies in the world; a media company that changes lives, inspires greatness, and unites people,” said Foley.

Peloton has robust Q3 2020 earnings report

Peloton’s Q3 2020 earnings report showed revenue growth from an increase in longer free trial subscriptions to its video service. Foley touted Peloton’s better-than-expected results.

“Early in the COVID crisis, we extended the digital subscription free trial period from 30 days to 90 days resulting in over 1.1 million downloads of Peloton Digital in the past six weeks. We were extremely proud to offer so many people free access to our incredible fitness content during this time,” said Foley.

“I am also proud of our financial performance this quarter with revenue growing 66% year-over-year to $524.6 million. With strong revenue flow through and leverage against our fixed costs, we achieved our first adjusted EBITDA positive quarter as a public company in Q3 with an adjusted EBITDA margin of 4.5%,” added Foley.

Peloton a strong pure play buy for some analysts

With Peloton’s strong revenue result, Wall Street analysts are raising their target price for the exercise bike’s stock. Cowen upped its Peloton price target from $54 to $70.

Cowen noted that Peloton is “helped by the pandemic, alongside marketing & logistics efficiencies. PTON(Peloton) also benefits from multi-year secular tailwinds behind the connected home fitness trend that PTON is pioneering. We raised FY20 to FY30 estimates and rolled DCF[discounted cash flow] to ’21; PT[price target] to $70 from $54, maintain Outperform.”

Analyst Todd Gordon noted that Peloton’s pure play business model helped the company succeed more than other fitness companies.

“This company was a first mover. It succeeded in the online fitness and social communities, unlike the other ones [with] hardware offerings like GoPro and Fitbit that I don’t think capitalized. They have a loyal customer base, high retention levels, and good margins from the subscription business”, said Gordon.

Some Wall Street analysts bearish on Peloton

While some analysts are bullish on Peloton, some financial experts are bearish on the pure play business. Gina Sanchez, CEO of Chantico Global, thinks that the company is facing stiff competition from other fitness equipment companies.

“It’s not just facing competition from SoulCycle. It’s is also facing competition from other bike makers like NordicTrack, Echelon, ProForm who are all forming their own studio offerings to help give a Peloton-like experience. They are a pioneer in this space but they’re also opening up the space for a lot of competitors,” said Sanchez.

Peloton is a fitness pure play stock that investors can choose to add to their portfolios.

10. Stitch Fix

Like Peloton, Stitch Fix (NYSE:SFIX) has a successful subscription-based service. The pure play e-commerce business has been booming since April as people are cleaning out their closets and updating their wardrobes.

Founder and CEO Katrina Lake noted that Stitch Fix’s strategy is to combine personalized shopping experiences with data science.

“We send you clothing and accessories we think you’ll like; you keep the items you want and send the others back. We leverage data science to deliver personalization at scale, transcending traditional brick-and-mortar and e-commerce retail experiences,” said Lake.

Stitch Fix a successful pure play e-commerce stock

Because of its combination of personalized customer service and data analytics, Stitch Fix’s Q1 2020 earnings report showed growth in clients. Lake commented on the results.

“We had another quarter of great momentum in Q1, delivering net revenue of $445 million, exceeding guidance and representing 21% year-over-year growth. We grew our active clients to 3.4 million, an increase of 17% year over year. Demonstrating the power of our data science, we continued to delight our clients, growing revenue per active client by 10% year over year, our sixth consecutive quarter of growth,” said Lake.

Analysts mixed on Stitch Fix stock

While Stitch Fix had a positive earnings report, the company had a sales decline in March. Because of the nationwide shutdown, some warehouses closed and many order couldn’t be filled as quickly. Because of the setback, many analysts like RBC Capital’s Mark Mahaney wrote a note to his clients about concerns about the pure play business.

“Given the COVID disruption, we expect weaker new/infrequent client conversions and the UK rollout to continue be challenged”, wrote Mahaney.

SunTrust Robinson analyst Youssef Squali is more bullish on the Stitch Fix stock. He believes that the company has an advantage with strong growth potential in ecommerce.

“We[SunTrust Robinson] remain bullish on the stock however, given SFIX’s strong competitive position in the structurally challenged Retail, robust unit economics, strong growth/margin potential in FY21 and beyond, and compelling valuation,” noted Squali.

Pure play businesses can have pivotal stocks for investors

Pure play businesses can have stocks that can pay off for investors. While pure play stocks carry risk, the stocks mentioned above persevered because of their uniqueness and innovation. With TradingSim charts and analysis, investors can find the best pure play businesses to add to their portfolios.

During this bear market, investors may have to rebalance their portfolio to maximize their profits. This TradingSim article will help readers to show them how to rebalance their portfolios- and how much it can cost. This article will also help readers find the top five growth stocks to add to their portfolios- and five to drop to rebalance portfolios.

What does it mean to rebalance a portfolio?

After COVID-19 devastated the global economy, investors are scrambling to recover. One way they can gain control of their financial destinies is to rebalance their portfolios. Adjusting investments can help an investor keep track of their goals and minimize risk.

Rebalancing portfolios is buying or selling assets to balance out asset classes. For example, an investor can have a portfolio that’s composed of 50% stocks and 50% in Treasury bonds.

At the end of a quarter, the Treasury bonds could be outperforming stocks. If the Treasury bond of the portfolio is outweighing the stock portfolio, the portfolio could be 70/30. with more Treasury bonds than stocks. Some financial advisors call for rebalancing portfolios if an asset has increased or decreased by 5% from its original allocation.

With that imbalance, an investor may want to rebalance to change the target allocation back to 50/50. The investor may also want to add another asset to a portfolio, like emerging market ETF’s. They may also want to have asset classes that balance out their trading strategy.

When should investors rebalance portfolios?

While there is no set time to rebalance a portfolio, some financial advisors noted that rebalancing a portfolio at any time can be key. It can lead advisors to have more discipline when they rebalance portfolios.

Christy Gatien is a certified financial planner and first vice president and portfolio manager at D.A. Davidson & Co. She noted that rebalancing a portfolio can cause investors to be wiser with their investments.

“The beauty of an asset-allocation approach is that it forces us to be disciplined investors as long as we stick with it. As we rebalance, we’re trimming the areas that are doing well — selling high — and adding to the areas that are struggling — buying low,” said Gatien.

30-Year Treasury bond Yields vs. 30-day Fed Funds Rate

Gatien advises against rebalancing a portfolio during extremes in a bull market.

“When markets are going up, we tend to overestimate our tolerance for volatility,” said Gatien.

If investors are rebalancing portfolios during a crash, there could be a downside for nervous investors.

“When markets are going down, we tend to be overly fearful,” said Gatien.

Should investors have a specific time to rebalance their portfolios?

Some investors may want to recalibrate their portfolios every quarter or annually. Larry Miles, principal at AdvicePeriod advises against traders having a set schedule to rebalance their portfolios.

“Rebalancing based on a particular month of the year makes no sense — it’s purely arbitrary,” said Miles.

“It’s like saying, ‘I’m going to drive in a straight line for 11 miles and then, in the 12th mile, I’ll turn right,” added Miles.

Miles wants investors to rebalance their portfolios when the stock market makes dramatic turns.

“You need to rebalance as often as the market dictates, to stay on the road,” said Miles.

Should investors use a rebalance portfolio calculator?

Investors can figure out how to recalibrate their portfolios with rebalance portfolio calculators.

Jason Lowy is a certified financial planner and first vice president of wealth management at UBS Financial Services. He advocates investors using rebalance portfolio calculators to help their asset allocation.

“These calculators are great at creating a general road map for where you could allocate investments. They may not, however, take into consideration individual goals and needs based on the investor’s specific situation,” said Lowy.

Rebalancing calculators can be useful to investors if they want to know exactly how much to allocate to their portfolios.

How does an investor rebalance a portfolio?

There are three main ways an investor can rebalance their portfolios.

Review the current portfolio before they rebalance portfolios. If an investor’s portfolio is through their 401k plan at work, they can review their portfolio through a quarterly report. They can obtain information from the brokerage companies handling their portfolios. Traders can also link their investing accounts to online apps to monitor their accounts more closely. If an investor is more DIY and old-school, they can make a spreadsheet of their investments to determine their asset allocation.
Plan out your ideal portfolio before rebalancing portfolios. After investors look at the portfolios they have, they can plot out the portfolios they want. If an investor’s portfolio is composed mostly of stocks and they want to focus more on bonds, there are changes traders can make to rebalance their portfolios. Investors can research the bonds they want to purchase and plan out the exact rebalance of portfolios they want in a spreadsheet. With an explicit plan, an investor can plan out the asset allocation they want to rebalance their portfolios.
Buy and sell shares to improve rebalance of portfolios. Investors can rebalance their portfolios by buying and selling shares of stocks, bonds, or other assets. Buying and selling the shares can help an investor balance out their portfolios.

What are the costs of rebalancing a portfolio?

Rebalancing portfolios can be beneficial, but also costly. When investors buy and sell shares on their own, there can be high fees. Selling a lot of assets, especially in a short period of time, may result in high trading fees, as Lowy noted.

“Rebalancing too often could result in a lot of transactions” and transaction fees, said Lowy. Investors can reduce the fees by investing with commission-free brokers. They can also choose online brokers that rebalance portfolios automatically for clients free of charge.

Investors should also learn about the capital gains taxes that can be levied on sold assets. Capital gains taxes come from profits from asset sales.

Short-term capital gains can be taxed as income. Long-term capital gains can be in the brackets of 0%, 15%, and 20%. Investors should consult with their tax professionals to determine the total costs of rebalancing portfolios.

Investors should thoroughly research stocks before they buy or sell shares of stocks. However, these following five stocks have seen the most growth so far this year. Investors can add these five stocks to their portfolios to rebalance their portfolios. For investors rebalancing portfolios during a crash, these stocks can be beneficial additions.

Top 5 stocks to add to rebalance portfolios

1.Beyond Meat

Beyond Meat (NASDAQ:BYND) is a company that is booming right now. For investors looking to add a growth stock to rebalance portfolios, this stock is a strong option. The meat alternative producer’s year-to-date performance is already an impressive 72.9% growth. With the COVID-19 crisis affecting meat warehouse workers, there are meat shortages in many grocery stores.

Beyond Meat’s rising stock can help investors rebalance portfolios

Because of the shortage, Beyond Meat has benefitted from the meat shortage. Many grocery stores have requested more orders from meat substitute producers like Beyond Meat to stock their shelves. The corporation’s stock surged a whopping 134% since the coronavirus crisis started.

Beyond Meat stock can help rebalance portfolios

Peter Saleh is an analyst at BTIG and watches corporations like Beyond Meat. He believes that customer loyalty is key to Beyond Meat’s success in grocery stores.

“What we really like about this story is you’re seeing the repeat rates of about 46% at least in the grocery store, which tells us that there’s really strong demand for this product, and I think you’re going to see more of it coming to menus at restaurants near you,” said Saleh.

Saleh also predicts more opportunities for Beyond Meat products to be offered in restaurants once they re-open.

“They’re at about 34,000 locations in the U.S. in terms of restaurants. Now, that’s only about 5% of the U.S. restaurant doors that they can get into, so I think there’s a lot more opportunity not only on the sausage or beef side but also on the poultry side. I think they’re working aggressively to expand that as well,” said Saleh.

Beyond Meat has excellent Q1 2020 earnings to help rebalance portfolios

In addition to its current success, Beyond Meat had a winning Q1 2020 earnings report. The company’s revenue skyrocketed 141% to $40.2 million from Q1 2019. Ethan Brown, Beyond Meat’s CEO, spoke about the results in a statement.

“I am proud of our first- quarter financial results which exceeded our expectations despite an increasingly challenging operating environment due to the COVID-19 health crisis,” said Brown.

Brown also stressed the importance of keeping the company’s workers safe during this current pandemic.

“The health and safety of our employees and their families is our top priority and we have implemented a series of measures to minimize risks while supporting business continuity,” said Brown.

With more consuming less meat or going vegan altogether, Beyond Meat is a growth stock to add to rebalance portfolios.

2. Netflix

In addition to Beyond Meat, Netflix stock (NASDAQ:NFLX) is also a growth stock performing well during this time of quarantine. Investors looking to add an entertainment company stock can rebalance portfolios with Netflix shares.

Netflix thrives during shutdown

With many people stuck at home, Netflix became a go-to source of entertainment. The streaming service added 15 million subscribers that watched hit shows like Tiger King and Love is Blind. Netflix also met Wall Street expectations with a reported Q1 2020 revenue of $5.77 billion.

Netflix touted its rising viewership in a statement.

“During the first two months of Q1, our membership growth was similar to the prior two years, including in UCAN[United States and Canada]. Then, with lockdown orders in many countries starting in March, many more households joined Netflix to enjoy entertainment,” said Netflix.

Analysts bullish on Netflix stock to rebalance portfolio

Because of Netflix’s increased viewership, Jefferies analyst Alex Giaimo rated Netflix stock as a buy in a note to clients. While the stock has been volatile over the last month, Giamo says Netflix is a long-term buy for investors who want to rebalance their portfolios. He notes that since more viewers are abandoning cable for streaming services, Netflix’s stock should rise in the long run.

Netflix stock an excellent pick to rebalance portfolios

“Stock sentiment leans more positive, with bulls highlighting the accelerated shift from linear to OTT (over-the-top TV) while bears push back on valuation and technicals,” wrote Giamo.

“Near-term choppiness is expected, but we advise buying dips and owning shares long term,” added Giamo.

For investors looking for a long-term investment, Netflix can be a smart choice to rebalance a portfolio.

3. Citrix

For investors looking for a well-performing tech stock, one choice may be an overlooked company-Citrix (NYSE:CTXS). Citrix isn’t as high-profile as Zoom (NASDAQ: ZM), but is a tech company that helps many people that have to work from home. The cloud company provides remote access software to workers, which is essential now during the quarantine.

Citrix stock rose 37% this year and grew exponentially during this quarantine. The company’s chief marketing officer, Tim Monaghan, recently spoke about how Citrix has helped remote workers for decades.

Citrix stock rising can help rebalance portfolios

“Remote work is top of mind for companies around the world. And while some see it as a short-term fix to the COVID-19 problem, smart companies recognize it may be a long-term solution as they plan for what promises to be a radically different future,” said Monaghan.

Analysts say Citrix can help rebalance portfolios

Because of Citrix’s strong performance, Raymond James analyst Robert Majek upgraded the stock to a buy in a note to clients. He believes that the increase in flexible work-from-home schedules will help Citrix stock grow.

“We believe the surge in business continuity planning, including facilitation of remote work, could be a structural change that drives virtual desktop and application demand not only this quarter but in the next 1-2 years, giving us[Raymond James] increased confidence Citrix can meet or exceed 2020 and 2021 street growth estimates.”

William Blair analyst Jason Ader also believes Citrix stock will outperform Wall Street expectations. He wrote in a note to clients that he believes investors should add Citrix to rebalance portfolios.

“Our rating change is driven by the view that the wake-up-call nature of the current crisis will drive many organizations to expand their usage of (Citrix) technologies, which should result in a higher long-term growth rate for Citrix and a re-rating of Citrix stock,” wrote Ader.

If investors want to rebalance their portfolios by adding a fast-growing tech stock, Citrix could be a good option.

4. Humana

Humana (NYSE:HUM) was a top stock before the COVID-19 crisis. The stock rose because of two reasons. First, the healthcare corporation had a higher enrollment in its Medicare Advantage health care plans in the beginning of the year.

Second, the Democratic presidential primaries helped boost Humana stock 49% over the past year. When democratic socialist candidate Bernie Sanders was winning early primaries, many healthcare companies like Humana worried and shares dropped. Investors were concerned that his Medicare for All plan would eliminate private health insurance if he won a general election.

Humana stock could be addition to rebalance portfolios

However, when moderate rival joe Biden won more primaries later on, Humana stock rose as healthcare companies knew Biden wouldn’t implement non-profit insurance if he won the general election.

Humana can be strong stock to rebalance portfolios with telehealth services

While more customers and moderate politics helped Humana pre-COVID-19, telehealth services helped improve Humana’s bottom line after the pandemic spread to the United States. CEO Bruce Broussard noted that telehealth services helped them reach more customers.

“Telehealth, together with increased use of our mail-order pharmacy and early fills allows our members with chronic conditions to continue to receive care to prevent long-term negative health implications. Since the declaration of the national emergency in mid-March, we have closed approximately 630,000 gaps in care,” said Broussard.

“Further the providers in our value-based arrangements saw the benefit of predictable cash flow streams and we’re the fastest to innovate and create thoughtful digital telehealth strategies in response to the crisis,” added Broussard.

With telehealth being a new way to deliver care to more patients, Humana stock can be a good option for investors who want to rebalance their portfolios with healthcare stocks.

5. Target

For investors that want a strong retail stock to rebalance their portfolios, Target (NYSE: TGT) could be a good choice. Target had its stock rise 42% over the past year. The big-box retailer had a double-digit rise because stores remained open during the coronavirus crisis.

Because Target was deemed an essential service, the store had many customers-just not necessarily in physical locations. The store’s online sales grew exponentially with many people home under quarantine. Digital sales skyrocketed 275% since April. The company’s Q1 2020 revenue also beat expectations and reached $19.62 billion.

Target stock could be added to rebalance portfolios

Target CEO Brian Cornell spoke about the jump in digital sales.

“Unprecedented volatility within the quarter presented the most extreme test of our business and operations that I could have imagined. And in that environment, we drove industry-leading growth with a total comp sales increase of 10.8% and digital comp growth of more than 140%,” said Cornell.

Financial analysts rate Target stock a buy

Wall Street experts also think Target shares can be bought to rebalance portfolios. Raymond James analyst Matthew McClintock wrote in a note to clients that Target stock is a buy because of its strong e-commerce division.

“In a world of retail ‘winners and losers,’ those who have aggressively invested in omni-channel and supply chain capabilities, and those who have differentiated merchandising with highly relevant brands, have an immense market share opportunity over the next several years,” wrote McClintock.

Target sales can make stock a top pick to rebalance portfolios

While other retailers are struggling, Target can be a robust stock for investors who want to rebalance their portfolios. The recent passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act gave much needed financial help to struggling Americans. The government stimulus checks also helped the store’s profits.

Cornell spoke about Target sales rising as Americans received government stimulus checks.

“When April 15 hit and those stimulus checks arrived, we saw a very different shopping pattern. America was back in our stores shopping all of our categories, still taking advantage of the convenience of our contact-free online services,” said Cornell.

With growth in e-commerce sales and perseverance through the COVID-19 pandemic, Target could a strong retail stock to help rebalance portfolios.

Top 5 stocks to sell to rebalance portfolios

1. J.C. Penney sell necessary to rebalance portfolios

While Target’s stock is a buy, this retailer’s stock is a sell. J.C. Penney’s(NYSE:JCP) stock is now just a penny stock. J.C. Penney filed for bankruptcy earlier this month after years of plummeting sales and crushing debt. The troubled retailer will close 242 of its 830 stores as a result. Investors that are still holding this stock should sell the shares to rebalance their portfolios.

J.C. Penney a stock to drop to rebalance portfolio

J.C. Penney hoped to recover with more curbside pickup of orders for customers. The retailer also hoped to increase sales by remodeling their stores. However, with the coronavirus pandemic, J.C. Penney couldn’t compete with other retailers and filed bankruptcy. CEO Jill Soltau spoke about the bankruptcy in a statement.

“Until this pandemic struck, we had made significant progress rebuilding our company under our Plan for Renewal strategy – and our efforts had already begun to pay off,” said Soltau in a statement.

JC Penney stock must be sold to rebalance portfolio

“While we had been working in parallel on options to strengthen our balance sheet and extend our financial runway, the closure of our stores due to the pandemic necessitated a more fulsome review to include the elimination of outstanding debt,” added Soltau.

Even Amazon can’t help J.C. Penney stock benefit rebalance of portfolios

There are reports that Amazon ( NYSE:AMZN) could step in and buy J.C. Penney. J.C. Penney stock could be sold to rebalance portfolios- even if Amazon steps in to rescue the company.

A source that works with Amazon noted that there are representatives from the e-commerce giant in J.C. Penney’s headquarters in Plano, Texas. The representatives are reportedly in talks with JC Penney to form a partnership.

”There is an Amazon team in Plano [Tex.] as we speak,” said the source who conducts business with Amazon. “There is a dialogue and I’m told it has a lot to do with Amazon eager to expand its apparel business — for sure.”

While Amazon could help J.C. Penney in the short term, there is still a long way to go before J.C. Penney can return to its former glory days. Neil Saunders is the managing director of GlobalData Retail and monitors big-box stores like J.C. Penney. He believes that J.C. Penney faces a steep challenge in rebranding itself in this economic downturn.

“A wholesale makeover is required to restore the company’s fortunes. In normal times, that process of reinvention would be challenging — accomplishing it in the midst and aftermath of a pandemic is more than a tall order,” said Saunders.

For investors that want to abandon old-fashioned retail stocks, selling J.C. Penney stock can help rebalance portfolios.

2. Carnival

In this COVID-19 era, the cruise industry has probably suffered the most. Carnival (NYSE:CCL) stock dropped a whopping 77% since the coronavirus crisis struck cruise ships earlier this year. Even though there is a brief rebound in its stock as the economy re-opens, the cruise industry may take longer to fully recover.

Carnival stock sale may be needed to rebalance portfolios

Some financial experts are skeptical that Carnival stock can recover from its current troubles. Danielle Shay is director of options at Simpler Trading and monitors cruise stocks. She thinks that the cruise industry will bear the brunt of the economic downturn.

“I think that the cruise liners are the ones that are going to get hurt the absolute worst out of this,” said Shay.

Carnival stock could be sold to rebalance portfolios

Shay is also unsure if the cruise industry can recover even if they raise more capital.

“Even if they do have somewhat of a capital raise, eventually, they’re most likely going to head towards bankruptcy and their stock price could head down to 5, even to 0,” said Shay.

Carnival Q1 earnings devastated by COVID-19

Carnival’s economic troubles were evident in its last earnings report. The corporation recorded a loss of $781 million, twice the amount in Q1 2019. Carnival also noted that coronavirus caused a large financial loss.

“The impact of COVID-19 on the first quarter 2020 net loss is approximately $0.23 per share, which includes canceled voyages and other voyage disruptions, and excludes the impairment charges described above,” said Carnival.

“Other previously disclosed voyage disruptions, noted during the Corporation’s December earnings conference call, also impacted first-quarter 2020 results by approximately $0.12 per share,” added Carnival.

Economic slowdown and uncertainty about Carnival could cause rebalance of portfolios

In addition to Carnival’s financial loss, other factors could lead investors to rebalance portfolios by selling Carnival stock. Customers may be hesitant to return to cruise ships because of their reputation for quickly spreading diseases.

Shay is bearish on Carnival stock because she considers the company’s cruise ships a “floating Petri dish.” She also thinks that despite the current rise in cruise bookings, “I really don’t think they’re going to come back anytime soon.”

Even when Carnival resumes cruises in August, many potential customers may not be able to afford cruises. With 30 million people filing for unemployment over the past two months, this is hardly the best time for a luxury cruise on Carnival.

If investors want to rebalance their portfolios, they can sell their Carnival stock. The volatile cruise industry may not be the best option for traders until it has a full recovery.

3. United Airlines

United stock sale may be crucial to rebalance portfolio

In addition to the cruise industry, the airline industry is cratering as well. If investors want to rebalance their portfolios during a crash, United Airlines (NYSE:UAL) stock may have to be sold. United Airlines stock has tumbled 70% this year as travel ground to a halt during the quarantine.

United stock could be sold to rebalance investors’ portfolios

The corporation noted in its Q1 2020 earnings report that it reported a $1.7 billion loss as a result of the COVID-19 pandemic. The airline also expected to have a large cash burn for Q2 2020.

“The company currently expects daily cash burn to average between $40 million and $45 million during the second quarter of 2020,” added United.

Warren Buffett rebalances portfolio by dumping airline stocks

Even famed investor Warren Buffett saw a need to rebalance his portfolio during this latest economic downturn. Buffett’s Berkshire Hathaway sold 100% of its airline holdings as a result of the coronavirus’ effect on the industry.

Buffett explained that he has completely abandoned his 21.9 million United shares. He rebalanced his portfolio recently.

“When we sell something, very often it’s going to be our entire stake: We don’t trim positions. That’s just not the way we approach it any more than if we buy 100% of a business. We’re going to sell it down to 90% or 80%,” said Buffett.

During Berkshire’s latest virtual shareholder meeting, Buffett noticed how the airline industry suffered this year and why he needed to rebalance Berkshire Hathaway’s portfolio.

“The world has changed for the airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way,” said Buffett.

Warren also expressed pessimism that the airline industry can recover from the nationwide shutdown.

“I think there are certain industries, and unfortunately, I think that the airline industry, among others, that are really hurt by a forced shutdown by events that are far beyond our control,” added Buffett.

Financial analysts say United Airlines should be sold to rebalance portfolios

Even though United Airlines is slated to receive a $5 billion government bailout to keep it afloat, the airline is still drowning in debt. The company’s crippling debt and fewer passengers could cause investors to rebalance portfolios with sales of United stock. Argus Research analyst John Staszak wrote in a note to clients that he was downgrading United Airlines stock.

“United Airlines faces multiple headwinds in 2020. Even prior to the coronavirus outbreak, flight demand had weakened due to the U.S.-China trade war and slower economic growth in China,” wrote Staszak.

Even if United rebounds, the corporation still faces an uphill battle. Because of social distancing, their planes can’t be at full capacity, so that could hurt the airline’s sales. If United raises prices to offset losses, customers could stay home if they can’t afford price hikes. If investors want to rebalance their portfolios, they can sell United shares.

4. Tyson Foods

In addition, Tyson Foods(NYSE:TSN) stock could be sold to rebalance investors’ portfolios. The frozen food company has been rocked by COVID-19 as meat warehouse workers are falling ill with the virus. Some meatpacking workers have even died from COVID-19. These tragic occurrences have weighed on the corporation.

Tyson Foods pledged to protect workers’ safety in a statement. The corporation also acknowledged that the reduced workforce and increased production costs will impact the company.

“Operationally, we have and expect to continue to face slowdowns and temporary idling of production facilities from team member shortages or choices we make to ensure operational safety,” said Tyson in a statement.

“The lower levels of productivity and higher costs of production we have experienced will likely continue in the short term until the effects of COVID-19 diminish,” added Tyson.

Tyson has disappointing Q2 2020 earnings report

Tyson Foods had a disappointing Q2 2020 earnings report. The company’s net income fell 15% from $426 million to $364 million. The stock dropped 9% after the lackluster report.

Tyson stock can be sold to rebalance portfolios

Restaurant closures can lead investors to rebalance portfolios

In addition to Tyson’s workers contracting COVID-19, Tyson’s sales have been impacted by the virus as well. Restaurant closures have caused a decrease in demand for Tyson’s chicken. Food service sales to restaurants fell by as much as 30% in its last quarter.

The corporation noted that even if the economy re-opens soon, consumer demand may not offset the current slumping food service demand.

“For the remainder of fiscal 2020, we do not believe pricing will improve, and we do not expect increased demand in consumer products to completely offset the expected decrease in food service,” said Tyson.

Meat alternatives could cause investors to rebalance portfolios

Tyson is also facing competition from the aforementioned Beyond Meat. With meat alternative products gaining in popularity, Tyson’s meat products are in shorter supply because of plant closures after workers contract COVID-19. Investors may rebalance their portfolios and sell Tyson shares.

In contrast, Beyond Meat reported that it has enough inventory to supply grocery stores and restaurants once they re-open. If customer tastes continue to change and meat supply is inconsistent, investors may drop Tyson stock to rebalance their portfolios.

Tyson Foods stock sale could benefit rebalance of portfolio

After a worse-than-expected earnings report, an interrupted meat supply chain, and diminished demand for meat, traders may want to sell Tyson Foods stock to rebalance their portfolios.

5. Marathon Oil

Marathon Oil may be dropped to rebalance portfolio after oil crisis

Oil stocks like Marathon(NYSE:MRO) can be sold to rebalance portfolios. Oil shares had a terrible run because of the impasse between Saudi Arabia and Russia. In March, the countries disagreed on an oil production cut to drive up prices. As a result, Saudi Arabia flooded the market with oil and drove down crude prices.

Vivek Dhar of the Commonwealth Bank of Australia noted that the US oil supply would be negatively impacted by the oil overproduction. The overproduction can lead investors to rebalance their portfolios and sell Marathon stock.

“We think oil supply from the US, Canada and China are the most likely to be curtailed at low oil prices. US oil production cuts are expected to be the most significant,” wrote Dhar.

Marathon Oil has worse-than-expected earnings if investors want to rebalance portfolios

As a result of the oil overproduction, Marathon Oil tumbled 57% year-to-date. In addition to a surplus of crude, there was a diminished demand for oil during the quarantine. Because fewer people drove, there was less demand for oil, and Marathon’s stock fell.

Marathon Oil can be sold to rebalance portfolio

In its Q1 2020 earnings report, Marathon CEO Lee Tillman noted that Marathon was reeling from the international events affecting the oil industry.

“The impact to global oil demand, in particular, is unprecedented with a global health crisis essentially shutting down U.S. and global economic activity,” said Tillman.

Marathon also noted that the company will reduce its capital expenditures, halt dividends, and reduce its workforce by 16%.

“The revised capital budget of $1.3 billion or less represents a cumulative budget reduction of $1.1 billion from initial 2020 capital spending guidance. 2020 capital spending is now expected to be approximately 50% below actual capital spending in 2019,” noted Marathon.

Financial advisors say sell Marathon to rebalance portfolios

Morgan Stanley analysts note that if investors want to rebalance their portfolios, they should sell Marathon stock. Lead analyst Devin McDermott wrote that Morgan Stanley was downgrading the stock to an underweight rating. The bearish rating means that they believe Marathon’s stock returns will be lower than their peers for the next year. That’s a strong indication that investors should rebalance their portfolios.

“While the company is taking the right steps to preserve liquidity in response to low oil prices, [Marathon Oil] screens challenged versus peers with a 2021 [West Texas Intermediate] break-even of $37 a barrel (in the upper half of our coverage), and year-end 2021 leverage that rises to 4.5X at strip, above the peer median of approximately 2X,” wrote McDermott.

Moody’s says investors should rebalance portfolios and dump Marathon stock

Moody’s also thinks investors should rebalance portfolios by selling Marathon stock. The firm downgraded its rating of Marathon stock as a result of its recent troubles.

“Marathon Oil’s decision to reduce capital spending and suspend its dividend will help protect its 2020 cash flow in a low oil price environment. While the company’s very good liquidity is supportive, the negative rating outlook reflects the company’s limited resilience to a prolonged industry downturn due to an anticipated decline in production,”said Moody’s.

Rebalancing portfolios may happen if investors sell poorly performing and badly rated stocks like Marathon Oil.

Rebalancing portfolios in a crash can lead to better results

If investors rebalance portfolios during a recession, they can have more successful returns. TradingSim charts and blogs can help investors make the best choices to rebalance portfolios to maximize profits.

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