Finding overvalued stocks to sell isn’t hard. Investors today have more information than ever, promoting company transparency. However, this also means investors must contextualize this information when investing.
Often, a couple of negative headlines don’t alter a company’s investment thesis. Savvy investors know there are many reasons to sell a stock, but emotion should rarely be one.
To make informed decisions about selling overvalued stocks, consider fundamental metrics like a stock’s price-to-earnings (P/E) ratio. Short interest, analyst ratings, and institutional sentiment are also worth examining. While no single metric is foolproof, considering them collectively can provide a clearer picture of a stock’s status.
This article examines three overvalued stocks, each for unique reasons. Now might be a good time to sell some of your position in these stocks, but they could offer buying opportunities later.
Advanced Micro Devices (AMD)
Selling a stock doesn’t always mean selling an entire position. Sometimes it simply means knowing when to take a little profit off the top. And that’s the situation with Advanced Micro Devices (NASDAQ:AMD).
At a time when a company’s stock will go up for just mentioning artificial intelligence, it’s important to note that Advanced Micro Devices is the real deal. The launch of its new AI chip serves notice to Nvidia (NASDAQ:NVDA) that the race for AI is just heating up.
With that said, AMD now has a P/E ratio of over 600x. Yes, that’s been supported by a gain of over 16% in AMD stock in the last month. And despite that gain, the stock is still 24% below its all-time high. That’s something that some analysts believe is very doable. However, with the stock up over 80% in 2023, now may be a time for savvy investors to trim their positions and wait for a consolidation.
Barrick Gold (GOLD)
Next up on this list of overvalued stocks to sell is Barrick Gold (NYSE:GOLD). Gold mining stocks have performed reasonably well in 2023 as the price of gold rose on concerns over a weak dollar.
As a result, many gold miners have seen their price-to-earnings (P/E) ratios skyrocket. But few have taken off like Barrick Gold which as of June 20, 2023, trades at a P/E ratio of 267.50. That’s approximately 300x higher than where it started the year.
There are several reasons to be cautious with GOLD stock.
Firstly, the stock has dropped over 12% in the past month, with short interest rising over 18%. Some of this selling seems to come from institutional investors who sold more shares than they bought in the first quarter.
Secondly, First Quantum rejected the company’s recent buyout offer. Barrick aimed to buy First Quantum to increase its exposure to the copper market, which is expected to see explosive demand.
Lastly, despite the miner paying a quarterly dividend, the amount has decreased for the second consecutive quarter. In fact, the quarterly dividend payout is at its lowest in three years.
Tanger Factory Outlet Centers (SKT)
The last of the overvalued stocks to sell is Tanger Factory Outlet Centers (NYSE:SKT). Tanger is a real estate investment trust that, as its name suggests, owns factory outlet centers throughout the United States. However, as Matthew Farley wrote in April 2023, Tanger’s business model is being severely undercut by e-commerce companies who don’t have to invest in a brick-and-mortar footprint.
That was evident prior to the Covid-19 pandemic. As Ian Bezek wrote in April, outlet malls were among the slowest to recover from the pandemic in terms of foot traffic. And the weak retail sales numbers that came out in June make it clear that Tanger is facing an uphill battle with a weakening economy.
To be fair, SKT stock is not extremely overvalued in terms of its P/E ratio. As of this writing, it’s trading at around 27x earnings which is just a smidge above the S&P 500 average of around 25x. But with a dividend that has a payout that’s 36% below pre-pandemic levels, it’s a stock to avoid for now.
On the date of publication, Chris Markoch 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 InvestorPlace.com Publishing Guidelines.
