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Why Now May Be The Time To Sell Anglo American plc, Tesco PLC & Royal Dutch Shell Plc

Despite my repeated warnings of impending doom, share prices of many of the Footie’s commodity and retail giants have been carried higher again against a backcloth of giddy investor appetite.

Diversified commodities play Anglo American (LSE: AAL) has seen its share price explode 160% during the past three months, while oil giant Shell (LSE: RDSB) has enjoyed a 31% rise. Grocery house Tesco (LSE: TSCO) has seen its share value advance by a more modest 7% during the period.

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But a recovery from January’s multi-year lows does not suggest that these stocks are on the cusp of a stunning turnaround. As legendary economist John Maynard Keynes’ famously pronounced: “the market can stay irrational longer than you can stay solvent.”

With this in mind, I believe these recent share price rises provide fresh opportunity for canny stock pickers to head for the exits.

Time to check out

Tesco’s rebounding stock value has been underpinned by improved performances at the checkout. For instance, latest data from Kantar Worldpanel show Tesco’s sales decline just 0.8% in the 12 weeks to February 28th, a huge improvement from the 1.6% slide printed in January’s release.

But the retail giant is far from out of the woods. While Tesco announced yesterday that it had swung to a pre-tax profit of £162m in the year to February 2016 from a £6.3bn loss in fiscal 2015, chief executive Dave Lewis repeated that the grocer remains at the mercy of a “challenging, deflationary and uncertain market.”

Indeed, the need for constant price slashing will hamper the pace of profits improvement looking ahead and “particularly in the first half” of the current year, the company said.

While premium chains like Waitrose are courting customers with their high-quality items, the discounters like Aldi and Lidl are winning over the masses with their ultra-low prices. This leaves Tesco with a crisis of identity as it struggles to compete in either area.

With Tesco determined to win back share through earnings-crushing price cuts, and the competition expanding their operations at an alarming rate, I believe wise investors should continue to give the supermarket short shrift.

Fundamental fears

Like Tesco, both Anglo American and Shell also face a prolonged backdrop of revenues pressure in the years ahead.

Shell has seen its share price explode in tandem with resurgent crude values. The Brent benchmark smashed back through the $40 per barrel landmark last week and was recently dealing above $44, the most expensive since late last year.

Meanwhile, Anglo American has charged skywards on the back of a resurgent iron ore price, the steelmaking ingredient striding back towards $60 per tonne in recent sessions.

But I reckon the broad-based ascent in commodity values is built on sandy foundations. Question marks remain over the strength of underlying Chinese material demand, while hopes of supply cuts in both the metals and energy markets are yet to be backed up with tangible action.

Indeed, a deal to freeze output at OPEC’s latest meeting this week is by no means a foregone conclusion. And many major metal producers remain committed to expanding capacity despite the threat of prolonged price weakness.

Against this backdrop, I believe both Anglo American and Shell are — like Tesco — in danger of experiencing a severe share price correction.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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