Friday, December 8, 2023
Stocks To Sell

3 Overvalued Stocks That Might Not Survive the 2024 Market

Though not the most heartwarming topic, investors will likely do well to at least consider the topic of overvalued stocks to sell. Just from the “gravitational” concept, what goes up eventually comes back down. Even the most storied enterprises face corrective cycles. And there’s no reason to hold onto such securities if you genuinely believe a downturn is coming.

Practically speaking, by targeting certain overvalued stocks to sell, you’re not necessarily permanently bearish on them. Rather, a shrewd approach is to sell some of your holdings, then pick them back up when they’re on discount. This approach could be prudent if the underlying companies pay little to no dividends.

Also, 2024 may be a year of significant uncertainties. Most critically, inflation remains stubbornly high, which suggests that the Federal Reserve might aggressively raise interest rates. If so, that could lead to a greater rate of disinflation. At the same time, the hot labor market could pop, leading to a severe correction in equities.

Given all that could go wrong, these are my ideas for overvalued stocks to sell. Keep in mind I’m on X so you’re free to continue the conversation if you’d like.

Nvidia (NVDA)

Perhaps an obvious idea for overvalued stocks to sell, Nvidia (NASDAQ:NVDA) represents a case where I’m not long-term bearish. Rather, as I explained in my TipRanks article, I am tactically bearish. What does that mean? Fundamentally, I believe that Nvidia will continue to play a significant role in artificial intelligence and machine learning. However, it’s also possible that this sector is way too hyped.

For example, we all know about ChatGPT. While the AI chatbot is very useful for certain functions, it can also “hallucinate” and therefore make up facts. That’s a major problem, which is why I don’t see AI truly replacing humans. Frankly, I’d rather deal with a dim human representative than with an uber-intelligent machine, that cannot adapt to new conditions; at least, not adapt as quickly and sympathetically as humans.

Factor in that AI can also apparently hallucinate on the road and you can see why I’m concerned. Also, with NVDA priced at 97.83x trailing earnings – making it unfavorably higher than nearly 90% of its peers – and other opportunities simply look more appealing.

Equifax (EFX)

Barring a dramatic reversal of its market performance, consumer credit reporting agency Equifax (NYSE:EFX) seems destined for pain next year. And it seems investors recognize the fundamental pressures ahead, making EFX one of the overvalued stocks to sell. To be sure, it’s had a great run following its data breach disaster. But now, it’s time to get out.

Primarily, I’m concerned about rapidly fading relevance. As you might guess, the major credit bureaus sell their services to banks, mortgage lenders, and credit card companies, among other institutions. However, as interest rates continue to rise in response to stubbornly high inflation, fewer people are going to be interested in borrowing money (duh!). So, I don’t think EFX makes for a discounted buy.

Indeed, revenue growth in the trailing-12-month (TTM) period has slowed dramatically. And that’s conspicuously bad since EFX already trades at 3.92x trailing-year sales. In contrast, the sector median clocks in at 1.04x. Also, it trades at 19.38x forward earnings, worse than 80.63% of rivals.

TOP Financial Group (TOP)

An oddball enterprise, TOP Financial Group (NASDAQ:TOP) engages in the provision of futures brokerage and other financial services through a trading platform, according to its public profile. Unfortunately, both the business and the market performance make the entity one of the overvalued stocks to sell.

Since its public market debut in June 2022, TOP Financial has been anything but what its name suggests. Aside from a dramatic surge from late April to early May of this year, the enterprise has been a money pit. Granted, there could be another meme-inspired catalyst. However, aside from that unlikely event, TOP seems unusually dangerous.

First, futures trading represents a rarefied arena. Basically, it’s hard work and few people have the necessary time and resource investment available. Second, TOP is both volatile and overvalued. For all the red ink, shares trade at 46.5x trailing earnings, worse than 85.6% of the competition. Plus, the market prices TOP at 4.53x book value, above the sector median of 1.11x.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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