With the recent coronavirus-driven correction, what’s the next move for tech stocks?
Before, high-flying tech stocks were moving higher in a runaway bull market. Strong growth projections may have justified high multiples. But, as the market moved higher, these stocks reached frothy valuations to say the least. So with this mind, it’s reasonable to assume these names could fall further as markets cease to trend higher.
On the other hand, what if we are in a “buy the dip” type situation? It’s yet to be seen whether coronavirus headwinds will impact results, or if recent market action is merely fear-driven selling. Nevertheless, there’s good reason “too hot to touch” names are clearly stocks to sell as market enthusiasm turns to uncertainty.
Among a plethora of high-flyers, these three tech stocks stand out as screaming sells.
That said, let’s dive in and see why these are tech stocks to sell as the market trends lower.
Tech Stocks to Sell: Advanced Micro Devices (AMD)
If you’ve read my past analysis on Advanced Micro Devices (NASDAQ:AMD) stock, you know where I stand on this semiconductor name. In the past year, shares have taken off like a rocket thanks to across-the-board-growth. Not only in projected revenue and sales, but also in market share against rivals like Intel (NASDAQ:INTC). I may have ate humble pie as shares trekked above the $60 price point, but with the recent correction, shares are heading back to earth.
Yet, the selloff may be far from over. Why? Valuation, for one. Shares trade at a forward price-earnings ratio (P/E) of 38.6. Even compared to richly-priced Nvidia (NASDAQ:NVDA), which trades for 32.8 times forward earnings, AMD stock is overvalued. However, this may not be an issue if growth meets projections.
But, as InvestorPlace’s Josh Enomoto discussed Feb. 27, AMD stock could suffer disproportionately from the coronavirus outbreak. The outbreak’s impact on both industrial production in the Far East, as well as demand, could be a death knell to AMD’s growth trajectory. Without needle-moving growth, it’s tough for AMD stock to sustain its “priced for perfection”-tier valuation.
Overall, the bottom line is that shares could easily fall back to $30 — or below. Sure, Advanced Micro Devices may continue to make gains in the CPU and GPU chip spaces. But with AMD stock overvalued and risky, consider this one of the top tech stocks to sell as markets trend lower.
Apple (AAPL)
It may be surprising to include Apple (NASDAQ:AAPL) stock as one of the top tech stocks to sell. Yet, there’s good reason why the party’s over — short-term — for the venerable FAANG stock. Many stocks hit in last week’s maelstrom have minimal coronavirus exposure. But in the case of Apple, the company has quite a bit to lose.
As InvestorPlace’s Brad Moon discussed Feb. 21, AAPL stock seems due for a correction. Beyond the obvious coronavirus-related headwinds, iPhone sales peaked years ago. Other Apple growth catalysts, like Apple TV+, haven’t been needle movers, either. That said, economic impact from the recent outbreak is just icing on the cake for Apple stock’s bear case.
With uncertainty over near-term results, AAPL stock could see additional downside as investors bail. Shares took off from last fall until mid-February, with the stock climbing from the $200 price level to as high as $327.85 per share. Yet, with the aforementioned headwinds in play, shares could retreat back to prior price levels.
AAPL stock hitting $200 per share, or lower, is no longer out of the question. Shares may be a value play at such price levels, but don’t try to catch today’s falling knife. Collectively, Apple is clearly one of many tech stocks to sell in today’s declining market.
Shopify (SHOP)
Shopify (NYSE:SHOP) stock is another “hot stock” I’ve been quick to criticize in recent months. Yet, I may have been too early to the bear party for Shopify shares.
The e-commerce, SaaS powerhouse’s stock soared well past $300 per share starting last fall, reaching prices as high as $593.89 per share. Yet, with the stock market moving lower, Shopify shares are anything but immune from further downside.
The reason? Valuation. Shopify’s growth is nothing to sneeze at. But even for a growth name, SHOP stock has reached absurd levels of valuation. Shopify shares trade for 1,250 times estimated 2020 earnings. Yes, you read that right! In other words, Shopify is “priced for perfection” — and then some.
You could rationalize a premium valuation for Shopify, based on growth and total addressable market alone. But, unless a “FOMO-driven market” gets back on track, don’t expect this name to make new highs going forward. In turn. shares may wind up retreating back to the $300 price level or lower.
At lower prices, you could argue SHOP stock is “growth at a a reasonable price”. But that’s not the case at today’s rich valuation.
Thomas Niel, contributor to InvestorPlace, has been writing single-stock analysis for web-based publications since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.
