Investors are showing signs of shifting from growth stocks to income or value-focused investments amid concerns about higher interest rates. The 10-year Treasury note reaching 5% is prompting a risk-off approach. Inflation persists, and corporate results, along with rising bond yields and geopolitical tensions, are pressuring markets downward.
Several formerly high-flying growth stocks may face significant business decline if a recession materializes. This possibility poses substantial risk when it comes to their elevated valuations and their forward share prices. Let’s discuss three growth stocks to sell for those looking to sidestep any sort of incoming economic pain.
Palantir Technologies (PLTR)
Palantir (NYSE:PLTR) is known for its big data services and government contracts. It has recently gained attention with technological advancements like blockchain and AI.
Yet, despite high-profile deals, its financial performance disappointed. This is leading some to view it more as a “glorified consultant” than a tech innovator. Intense competition from more profitable consulting firms poses a challenge.
The simmering down of “AI mania” hasn’t stopped PLTR stock, which remains close to its 52-week highs fueled by confidence in the company’s AI potential. In spite of Palantir Technologies’ recent robust earnings, analyst Brian White from Monness, Crespi, Hardt & Co., Inc. cautioned against over-extrapolating. He emphasizes commercial activity’s vulnerability to economic fluctuations and the unpredictability of government deals. With PLTR stock trading at 80-times forward earnings, it appears detached from a reasonable fundamental valuation.
Tesla (TSLA)
Tesla’s (NASDAQ:TSLA) stock had an impressive rebound in the first half of 2023. Then, it faced a setback as aggressive price cuts, falling margins, and weakened profitability raised concerns.
Also, the company’s delivery growth didn’t meet expectations, contributing to a decline in stock value. Despite recent losses, Tesla’s valuation, at 65.8-times forward earnings, poses a risk amid softening EV demand and underwhelming results.
Notably, Tesla’s CEO Elon Musk retains a substantial stake in TSLA stock, ensuring alignment with the company’s success. However, Musk’s previous sell-off of about 8 million shares to finance a Twitter acquisition raised concerns among diverse shareholders, emphasizing the impact of his financial decisions on Tesla investors.
In recent TSLA news, to keep pace with Tesla’s innovations, General Motors (NYSE:GM) adopted an under-the-radar strategy by acquiring Tooling & Equipment International (NYSE:TEI). That company is instrumental in Tesla’s gigacasting process. This move aligns with GM’s goal to close the gap with Tesla in automotive advancements.
Roku (ROKU)
While Roku (NASDAQ:ROKU) experienced a 16% year over year (YOY) growth in members, its financial performance raises concerns. With only an 11% YOY increase in net revenue and a 7% decline in average revenue per user (ARPU), the company faces challenges in sustaining revenue if user growth stalls.
Additionally, Roku faces profitability challenges with a 7% decline in ARPU and an increased net loss of $300 million over the past six months. To boost investor confidence, the company implemented aggressive cost-cutting measures, including layoffs and reduced content and real estate spending.
The Q3 revenue projection of $815 million reflects a modest 7% YOY growth. This, coupled with previous quarters’ minimal revenue growth, poses risks to Roku’s valuation and expectations. The company’s persistent financial losses and potential for a YOY revenue decline could have detrimental effects on its stock.
On the date of publication, Chris MacDonald 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.
