Yet, there’s a handful of overhyped stocks that are ripe for pullbacks despite the market’s likely advance through the end of the year.
Thanks to a combination of too much euphoria and overzealous stock rallies, these names are probably best sold while the gettin’s still good.
And, there are five specific tickers that top this list of overhyped stocks to dump ASAP.
Overhyped Stocks to Sell: Zoetis Inc (ZTS)
So far, the Zoetis Inc (ZTS) bulls have shrugged off the obviously bad news, certain the pharmaceutical company is going to be acquired. And, maybe it will be. The market has a knack for predicting far more buyouts than actually materialize, however, and Zoetis may well be one of those overhyped stocks, up for all the wrong reasons.
One name will put it all in perspective — Bill Ackman. Ackman, through his hedge fund, reportedly took on a major position in ZTS stock recently, suggesting he’s aiming to facilitate a buyout in much the same way he worked toward a Valeant Pharmaceuticals Intl Inc (VRX) acquisition of Allergan, Inc. (AGN). That deal never got done (and likely never will), and though Allergan is being courted by other potential suitors, Zoetis stock may not be able to attract any potential buyers.
ZTS stock is up a hefty 33% year-to-date, most of which has been mustered in the past three weeks when the acquisition chatter began. With lowered guidance being released less than three weeks ago, however, the rich stock price and waning outlook don’t exactly scream “buy me.”
Overhyped Stocks to Sell: Apple Inc (AAPL)
This may not be a popular premise, but before anyone sharpens their pitchforks and prepares the tar and feathers, know that this isn’t a judgment call on the company. It’s just a judgment call on the rampant runup of the market’s overhyped stocks; it simply got a little ahead of itself in terms of a sustainable trend.
As of Wednesday, Apple Inc (AAPL) shares are up 19% from its Oct. 15 low. Granted, the launch of the iPhone 6 in mid-September was nothing less than heroic, with 10 million units selling in just the first three days of its availability … an Apple record.
Sales and earnings were solid last quarter, up 12% and 20%, respectively, with less than a couple weeks’ worth of sales at the end of last fiscal quarter, and are likely to be through the roof when the company posts the current quarter’s numbers in January.
That doesn’t mean the Apple shares are going to rise the whole time between now and then, however.
Overhyped Stocks to Sell: Palo Alto Networks Inc (PANW)
Companies ranging from Home Depot Inc (HD) to JPMorgan Chase & Co. (JPM) to Sony Pictures Entertainment Inc. became hacking victims, along with hundreds of other lower-profile organizations, collectively costing them millions of dollars. The need for network security service providers like Palo Alto Networks Inc (PANW) has never been clearer.
There’s just one problem, however. While the need is clear and the demand feels like it’s real, Palo Alto Networks loses more and more money the more revenue it drives. And there’s no end in sight to that trend.
And even if Palo Alto were to turn the corner soon and start improving net margins in lock-step with its revenue growth, the stock is still miles away from a palatable value.
Thanks to more than a 100% gain for the year so far, PANW stock is trading at 14.3 times its trailing 12-month sales. The market average is about 2.4. Even “strong” margins would leave Palo Alto Networks overvalued for any degree of possible growth in the foreseeable future.
Overhyped Stocks to Sell: Yahoo! Inc. (YHOO)
And, while a wad of cash gives Yahoo! The flexibility to make bigger and better acquisitions in the future, to date, it’s seen little traction with the deals it did before the Alibaba windfall. Case in point: Tumblr. Yahoo! dropped $1.1 billion on Tumblr, Inc. last year, but seems to have gotten very little traction with it in the meantime.
CEO Marissa Mayer recently reported Tumblr could drive $100 million in sales in 2015, but given the price tag and hype, investors were expecting more. Indeed, some observers have expressed lingering worry with Yahoo’s limited success thus far with the acquisition.
With no other compelling news surfacing in the meantime except the deal with Mozilla to make Yahoo! the default search engine for its Firefox browser [which isn’t as huge of a victory as it’s hyped to be], investors should soon be wondering — again — why they bid YHOO stock up 38% since mid-October.
Overhyped Stocks to Sell: Agios Pharmaceuticals Inc (AGIO)
The market has made Agios Pharmaceuticals (AGIO) one of its most overhyped stocks largely because Jim Cramer had made it one of his own most overhyped stocks several days ago, driving AGIO stock up to what’s now a 325% gain year-to-date.
If Agios Pharmaceuticals sees the same fate as too many of Cramer’s picks, however, it’s likely to come crashing down in spectacular fashion sooner than later.
Agios Pharmaceuticals is the developer of a Phase 1 drug for hematologic malignancies include myeloid leukemia. Encouraging data for this drug, simply called AG-120, was unveiled last month, which prompted Cramer to tout it as a win-win … either as a buyout candidate, or as the eventual owner of a breakthrough drug.
Being a Phase 1 drug, however, means it will still be years before the industry can take AG-120 seriously enough to call it a breakthrough or a buyout target. Once recent investors realize nothing significant is going to happen with the drug or the company this year, the profit-takers should crawl out of the woodwork. Better to be out first than out last.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.