I have a bullish view on equities as the world crawls back toward normalcy. However, there can be intermediate corrections even in the most optimistic times. It would therefore make sense to stay away from stocks that are trading at overly stretched valuations. This column will discuss seven stocks to sell into July 2021…
First and foremost, the S&P 500 Index trades at a price-to-earnings-ratio of 45.9. Clearly, the broad markets look expensive. Further, St. Louis Federal Reserve President James Bullard believes that the first interest rate hike might come as early as 2022. This is another factor that can make the markets jittery.
Additionally, the delta variant of Covid-19 is increasingly a concern. If the variant continues to be a cause of rising infections in the United States, the markets will be concerned.
Therefore, with these possible headwinds, it might be a good time to book profits in overvalued stocks. Most of the stocks to sell that I have discussed are still worth buying on later declines.
Let’s take a deeper look into the valuation and business fundamentals of these stocks to sell into July 2021.
- Chewy (NYSE:CHWY)
- Nvidia Corporation (NASDAQ:NVDA)
- Ocugen (NASDAQ:OCGN)
- ChargePoint Holdings (NYSE:CHPT)
- Carnival Corporation (NYSE:CCL)
- Doximity (NYSE:DOCS)
- Shopify (NYSE:SHOP)
Stocks to Sell: Chewy (CHWY)
CHWY stock is among the top stocks to sell at a forward price-earnings ratio of 833. The stock has corrected from highs of $120 to current levels of $81. However, valuations suggest that there might be room for further downside.
For the first quarter of 2021, Chewy reported revenue growth of 31.7% to $2.14 billion. However, the company’s adjusted EBITDA margin is at 3.6%. I believe that sustained improvement in margins is one factor that can translate into renewed upside.
It’s also worth noting that for 2020, Chewy reported free cash flow of $2 million. For Q1 2021, FCF has increased to over $59 million. To justify current valuations, FCF needs to keep accelerating in the next few years.
The company has witnessed healthy growth in active customers. Additionally, net sales per active customer have also increased. If this trend sustains, it will be positive from a margin and cash flow perspective.
In June 2021, the company’s CEO and CFO sold 169,000 and 74,610 shares respectively. CHWY stock also has an increasing short position build-up. These might be indicators of an impending correction.
There is no doubt that NVDA stock would be worth holding for the long-term. However, for active investors, the short-term upside seems to be overdone. NVDA stock has trended higher by 24% in the last month. I expect some cooling-off and consolidation before another rally.
As an innovator, I believe that Nvidia is well-positioned to benefit from the growth in autonomous driving. At the same time, Nvidia’s artificial intelligence advancement implies application in several industries. The prominent ones are telecommunication, healthcare, robotics, warehousing and smart cities, among others.
From a financial perspective, the company’s core segments of gaming and data center have continued to deliver strong growth. Further, the automotive segment is likely to be a potential game-changer in the next few years.
For Q1 2022, Nvidia reported operating cash flow of over $1.9 billion. This would imply an annualized OCF of $8 billion. Nvidia therefore has robust financial flexibility to invest in innovation driven growth. At the same time, the company is likely to continue pursuing attractive acquisition opportunities.
According to 41 analysts tracking NVDA stock, the average price target is $737.89. Current levels of $799 might therefore be slightly stretched. However, any pull-back would be a good accumulation opportunity.
Stocks to Sell: Ocugen (OCGN)
At one point in the last couple weeks, OCGN stock moved higher by 27% on news that Ocugen partner Bharat Biotech’s Covid-19 vaccine showing 77.8% efficacy in late-stage trials.
But the rally has turned around, with the stock down over 6% in the past five days, for good reason. First and foremost, the FDA had questions on the company’s application for emergency use authorization for Covaxin. The company is now pursuing the biologics license application for its Covid-19 vaccine candidate instead of EUA.
Further, the United States has…
Continue reading at INVESTORPLACE.com