It will be tough for the stock market to keep up the pace after such an explosive first half. Undoubtedly, stocks could easily continue to rise if demand for artificial intelligence accelerates further. In any case, it’s far smarter to lower expectations by a notch, especially with valuations getting a tad ahead of their skis.
While not all stocks are pricier than when the year began, I think certain names stand out as more ripe for profit-taking than others. In this piece, we’ll have a glimpse of three overhyped stocks to sell that may be in for rougher waters in the second half.
Whether they’re more vulnerable to amplified downside in the face of the next market crash or correction remains to be seen. Either way, I find there to be a lack of value in the following names.
Tesla (TSLA)
After running into several road bumps in the first half, Tesla (NASDAQ:TSLA) shares may be viewed by some as more of a prime buy-the-dip candidate. It is still a Magnificent Seven company, after all, and one that could have room to run if it’s to catch up to its six better-performing rivals.
At the time of writing, TSLA stock was down just over 20% in the first half. With a much-hyped robotaxi event in store for August, the electric vehicle (EV) maker may have the catalyst it needs to make it magnificent again.
Despite the relatively modest multiple — 54.1 times trailing price-to-earnings (P/E) — Tesla and the other autos could roll further downhill from here as hopes for a delivery recovery fade. Some analysts see Tesla coming up short on deliveries for the second quarter. If Elon Musk and his company fail to stack up to expectations, it’s hard to envision TSLA stock turning higher in the second half.
Lululemon (LULU)
Lululemon (NASDAQ:LULU) also had a painful start to the year, with LULU stock shedding more than 40% of its value in the first half. The woes may not be over yet as the company attempts to find its footing in a fashion scene that’s seeing denim making a comeback of sorts. Jeans seem to be in, while athleisure and yoga pants are out.
The latest quarterly earnings report, which saw sales rise 10% and a higher guide, provided some relief for investors, at least initially. With LULU stock now stretching lower to kick off the second half; however, I can’t say I’m all too enthused to chase the name as a value play. Especially not while consumers look away from various upscale apparel brands.
Though shares look historically cheap at 24 times trailing P/E, I find it tough for Lululemon to stay relevant in the face of rising competitive threats. Management seems to be pointing the finger at themselves for the recent underperformance, noting “missed opportunities.”
However, I think the worst of Lululemon’s woes are mostly out of its control. The apparel scene, as a whole, is just in such a bad spot right now. And it could stay this way for a while.
Walgreens Boots Alliance (WBA)
Speaking of laggards, Walgreens Boots Alliance (NASDAQ:WBA) finished off the first half with a catastrophic implosion. Now down close to 25% in the past week and over 54% for the first half, questions linger as to what the free-falling U.S. pharmacy retailer will do as it shutters a sizeable chunk of its stores.
Indeed, there’s no easy solution for Walgreens, which also trimmed its guidance for the full year, now calling for earnings per share to be in the $2.80 to 2.95 range, down from $3.20 to 3.35. That’s a steep cut and one that’s adding salt to the wounds of an already distressed firm.
Management’s commentary did not do much to soothe WBA stockholders’ fears, either. CEO Tim Wentworth stated that the “current pharmacy model is not sustainable.” With big changes ahead and significant earnings headwinds on the horizon, WBA stock seems like too risky a stock to buy no matter how much cheaper it gets.
On the date of publication, Joey Frenette 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
