7 Growth Stocks That Could Be Derailed Soon

These popular growth companies are signaling worrying technical indicators

By Josh Enomoto, InvestorPlace Contributor

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Since the collapse of the financial markets in 2008, one of the best places to have parked your money was in equities. Particularly, growth stocks have proven as wise and lucrative investments. However, every rally experiences a correction at some point, which we’ve seen earlier this month.

Knowing when to sell stocks is a tricky proposition. For starters, we’re still very much in a bull market. The Dow Jones Industrial Average, despite going through multiple gyrations, is still technically in positive territory. Since the start of this decade, the Dow has more than doubled its value.

At the same time, it’s important not to grow overly attached to your portfolio. This advice is especially important for growth stocks. These investments often feed on collective emotions and sentiment, which can cloud your judgment. Instead, realize that while you may not know exactly when to sell stocks, the time to do so will inevitably arrive.

However, this is also where technical charts are your best friend. While it’s crucial to analyze the fundamentals, they’re not great at providing real-time assessments. On the other hand, the technicals provide a snapshot into market sentiment and behavior.

Now, I have to provide an important caveat: This is not an exact science. As humans are unpredictable, so are the markets. That said, deciphering common signals can help us determine when to sell stocks, especially those indicating overbought conditions.

Here are seven growth stocks that might be headed for a pullback:

Amazon (AMZN)

Growth Stocks That Could Derail Soon: Amazon (AMZN)

Amazon (NASDAQ:AMZN) is the one that hurts me the most, so I might as well get it over with. In recent years, I’ve consistently pushed AMZN stock. In my opinion, this is one of the most transformational companies … a true unicorn.

The most obvious factor bolstering Amazon stock is that it not only owns an industry, but defines it. When people talk about the e-commerce revolution, they’re almost always referring to Amazon. Major brick-and-mortars have been coerced into restructuring their long-term strategies in order to stay afloat.

So as a play on macro trends, I’m still very much bullish on AMZN stock. But for me to ignore its ugly charts in recent sessions would be intellectually dishonest.

After suffering a series of declines this month, AMZN stock has trended sideways for the past week-and-a-half. That suggests bulls are growing tired, a not unreasonable thesis given its dramatic rise.

True, Amazon has come back from prior bearishness, most notably at the end of March through mid-April of this year. It’s not something to keep on your sell list perpetually, so when the discount comes, take advantage!

Salesforce (CRM)

Growth Stocks That Could Derail Soon: Salesforce (CRM)

Cloud-computing company salesforce (NYSE:CRM) is another name that I’ve previously liked, and still do. For one thing, CRM stock is levered toward the broader digitalization machinery. More importantly, it has treated shareholders well, having gained almost 37% year-to-date.

Another factor that I appreciate about CRM stock is the underlying company’s leadership team. At a time when blockchain and cryptocurrencies have become overly hyped, salesforce calmly integrated the new technology into their business. This is an organization that knows their stuff.

But as I said earlier, it’s important to have a basic understanding of when to sell stocks. In this case, salesforce shares exhibit the same worrying trends as Amazon.

Both AMZN and CRM stock are down double digits in October. Like the e-commerce giant, salesforce is perfectly sandwiched in between its 50- and 200-day moving averages. After the early October dip, bulls have responded relatively meekly, only managing to move sideways.

That’s not very convincing sentiment, so I expect CRM stock to absorb some more pressure. However, I’m still optimistic on the company’s broader trajectory, so don’t stay in bear-ville for too long.

Adobe (ADBE)

Growth Stocks That Could Derail Soon: Adobe (ADBE)

Adobe (NASDAQ:ADBE) is one of my favorite companies, and not just for its investment potential. Having performed creative professional work in the past, Adobe products are simply irreplaceable. For the most part, ADBE stock has confirmed this.

Since the start of the year, Adobe shares have jumped over 39%. That makes ADBE stock one of the best performing, large-capitalization growth stocks. Moreover, fundamental investors really love the company’s consistency. Since at least the first quarter 2015, Adobe has exceeded consensus earnings-per-share targets.

But no company is immune to a broader market correction. Unfortunately, ADBE stock has taken significant damage.

Like the other growth stocks mentioned, Adobe shares have generally trended sideways following the Oct. 10 selloff. What makes ADBE stock dubiously stand out is that shares are barely hanging on to the $242 support line. Another bout of bearishness could send shares sliding.

That said, I still like Adobe for its longer-term picture and its attractive Software as a Service business structure. Wait for the pullback, and consider jumping back on board when the dust settles.

Palo Alto Networks (PANW)

Growth Stocks That Could Derail Soon: Palo Alto Networks (PANW)

On the surface, growth stocks involving the cybersecurity industry are no-brainers. As I discussed in prior years, cybersecurity represents big business. And Palo Alto Networks (NYSE:PANW) is one of the biggest sector players. PANW stock has gained over 32% YTD.

Moreover, the industry has significant political implications that will only drive increased demand for cybersecurity companies. The most prominent example is the Russian collusion issue that has resulted in another cold war. Now, our rapidly deteriorating relationship with China underscores the importance of investments such as PANW stock.

I previously stated that it’s difficult to know precisely when to sell stocks before they implode. However, Palo Alto looks incredibly vulnerable to another steep selloff.

For one thing, PANW stock is down nearly 15% since the start of this month. In addition, shares have been sliding since mid-September, which indicates that Palo Alto has bigger problems than just poor sentiment.

I still like PANW stock for the long run. Unfortunately, I must respect what the markets are telling me right now.

Alibaba (BABA)

Growth Stocks That Could Derail Soon: Alibaba (BABA)

Alibaba (NYSE:BABA) perfectly represents both the opportunities and dangers in guessing when to sell stocks. BABA stock experienced explosive growth last year, nearly doubling in market value. I felt, though, that the dramatic lift was overdone.

Fundamentally, I didn’t like the many controversies surrounding BABA stock, chief among them the company’s accounting discrepancies. Additionally, while China has a massive population, not everyone has participated in the country’s increase in wealth. In fact, because China is about four times the size of the U.S., on a per-capita basis, the Asian giant is surprisingly poor.

But BABA stock really didn’t fall as I had anticipated, until now. BABA stock is down double digits since the first of October. Critically, though, shares have been on a downward slide since mid-June.

If you want to catch a knife for Alibaba, I’d wait until I see a real drop. Our relationship with China is pretty much near all-time lows. I also don’t expect the Trump administration to let off the pressure because it can’t: Trump talked tough to bolster his electorate, and he can’t give in now.

GoDaddy (GDDY)

Growth Stocks That Could Derail Soon: GoDaddy (GDDY)

If GoDaddy (NYSE:GDDY) had its initial public offering ten years ago, I’d probably have considered buying some shares. The internet of course forms the bedrock of business today. Without a digital presence, you’re nothing. Therefore, GDDY stock made sense at the time.

But at its current valuation, GoDaddy seems too rich for comfort. Furthermore, GDDY stock faces severe competition. Nowadays, consumers have no shortage of options for their website development needs. Plus, with race-car driver Danica Patrick having retired from motorsports, GoDaddy lost a major advertising presence.

That doesn’t bode well for the company amid the broader selloff. Indeed, GDDY stock is down more than 11% for this month.

The troubles could deepen for the website developer. GoDaddy competes aggressively on price point with its rivals. But because the company doesn’t really offer anything unique, GDDY stock could eventually suffer from margin pressure.

Again, with the weakness in the major indices, I don’t think this is the time to go contrarian.

Paycom Software (PAYC)

Growth Stocks That Could Derail Soon: Paycom Software (PAYC)

You don’t have to be an expert to realize that the business landscape is changing dramatically. But no matter what happens, human resources will remain a vital component for how companies operate. That’s why in the long run, an investment in Paycom Software (NYSE:PAYC) makes logical sense.

PAYC stock has lived up to its reputation as one of the “growthiest” of growth stocks. Since the January opener, Paycom shares have skyrocketed nearly 63%. That’s despite the fact that PAYC absorbed a 15% blow in October.

But that’s also the reason why investors should remain cautious at this juncture. The benchmark indices don’t look great, which might be an early warning indicator that business growth could take a hit. Of course, that wouldn’t be too hot for PAYC stock.

Ultimately, though, I believe profitable shareholders view this time as an opportunity to trim their exposure. You can tell that because the bulls have only managed to push PAYC stock sideways since the October selloff.

While Paycom maintains a compelling business, PAYC stock is simply too risky right now.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2018/10/7-growth-stocks-that-could-be-derailed-soon/.

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