The year got off to a rip-roaring start. The first half of 2023 saw spectacular gains in many stocks. The benchmark S&P 500 Index rose 16% between January and the end of June. The tech-laden Nasdaq doubled the S&P’s performance, gaining 32% and registering its best first half in 40 years. Many stocks have seen their share price more than double in short order amid growing hype over artificial intelligence (AI) and improving investor sentiment.
Expectations that the U.S. Federal Reserve is close to ending its monetary policy tightening moves and that interest rates could actually decline in this year’s second half are also fueling the current bull run. However, amid the euphoria, investors may want to be cautious, especially with stocks that have enjoyed spectacular runs year to date. The momentum behind many of the best performers could wane, and share prices could fall just as fast as they have risen.
It’s important to remember that there’s never a bad time to take profits. Here are three momentum stocks to sell before they do your portfolio in.
Tesla (TSLA)
Electric vehicle maker Tesla (NASDAQ:TSLA) has had an incredible run this year, up nearly 154% since January. However, the stock remains volatile and is only about 9% higher than where it was trading 12 months ago. TSLA stock suffered a brutal decline last fall after Chief Executive Officer (CEO) Elon Musk completed his $44 billion acquisition of Twitter, raising concerns that his focus would shift away from the automaker. Peak to trough, Tesla’s share price fell over 65% between September and January. Could another steep decline be in the cards for this high-flying stock?
A pullback is certainly possible after a huge run like the one Tesla has experienced. Currently trading at about 83 times forward earnings, TSLA stock is not cheap. And while the electric vehicle maker and its mercurial CEO remain popular with retail investors, many professional investors and traders won’t touch the stock due to its unpredictable nature. Right now, Tesla stock has momentum thanks to news of better-than-expected sales and deals to rent its charging stations to competing automakers. But things can change quickly.
Coinbase (COIN)
Cryptocurrency exchange Coinbase Global (NASDAQ:COIN) is another stock that enjoyed a stampeding run in this year’s first half, gaining about 106% over the last six months. But clouds are forming on the horizon for the company and its shareholders. The main issue is a lawsuit against Coinbase launched by the U.S. Securities and Exchange Commission (SEC) that alleges the company has operated as an unregistered securities dealer and broker.
Of course, Coinbase vehemently denies the charges, and CEO Brian Armstrong has vowed to fight the Wall Street regulator in court. But the legal action casts uncertainty over the company and COIN stock. Additionally, the advances in Coinbase’s share price this year have largely come as cryptocurrency prices rallied, with Bitcoin (BTC-USD) up 81% year to date. However, crypto remains volatile and prone to big price swings. Going forward, the fortunes of Coinbase can be expected to follow those of digital coins and tokens, which are unpredictable.
Carnival Corp. (CCL)
Also on the rebound in a big way is Carnival Corp. (NYSE:CCL), a leading cruise line operator. Year to date, Carnival’s stock has increased almost 140%, bringing its gains over the last 12 months to 111%. The strong recovery comes as Carnival’s cruise bookings and earnings increase substantially after being decimated during the pandemic. However, Carnival’s business remains susceptible to any resurgence of Covid-19, which could happen this fall and winter during influenza season.
Right now, things are looking great at Carnival. The company recently announced it is seeing the highest demand for bookings in more than 50 years as people get out and travel again. However, the company lost $10 billion during the first year of the pandemic in 2020 and is loaded with $30 billion of debt. While a return to Covid lockdowns seems unthinkable at this point, there’s no telling what winter will bring. Also, while it has been flying high year-to-date, Carnival warned at the end of June of lower profits in the current third quarter. Be careful.
On the date of publication, Joel Baglole did not hold (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.
