- Tactical allocation seems to be the name of the game in this bear market. Here are four overvalued stocks worth shorting:
- Nvidia(NVDA)- The firm's GPU sales could wane amid PC gaming headwinds.
- Netflix(NFLX)- Still trading at a cash basis premium, its subscribers could continue fading amid the password-sharing saga.
- Chevron's(CVX) - Commodity prices could drop abruptly as rates rise. Moreover, CVX is trading at nearly twice its book value.
- Carvana(CVNA) - A very frail stock considering its business model relative to the current economic climate.
We’re officially in a bear market. The good news is that the market has two ends to it, meaning that we can profit from stock price appreciation as well as depreciation. Because of this, I have compiled a list of overvalued stocks to sell in this bear market.
Source: Gurufocus
I thought long and hard about how I’d structure this article. I will present you all with stocks that are trading above intrinsic value. In addition, I delved into the cyclical stage of the economy to figure out which sectors will likely slump into an extended downward spiral. Lastly, I considered an investment horizon; the yield curve indicates that we could be in for another two years worth of market turmoil. So, consider this article as a 48-month ex-ante analysis.
Stocks to Sell: Nvidia (NVDA)
Nvidia(NASDAQ:NVDA) stock is in freefall after capitulating by nearly50%since the turn of the year. Looking forward, Nvidia is faced with a few challenges. First of all, the company is faced with re-openings and surging inflation, which could dent its PC gaming sales. Also, supply-chain woes continue to be troublesome to semiconductor companies as the time for delivery still sits around26 weeks.
Lastly, NVDA stock is overvalued as it is trading at 13.45x its sales and 44.35x its cash flow. I’d personally short the stock as it has a long way to drop before it reaches its intrinsic value.
Netflix (NFLX)
Netflix(NASDAQ:NFLX) stock’s year-to-date slump of more than70%doesn’t make it a “buy the dip” opportunity by any means. Its recent subscriber slowdown coupled with the password sharing saga means that there’s significant idiosyncratic risk linked to this stock. Moreover, consumers will likely cut costs on ancillary goods, such as subscriptions, as the economy continues to fade with contractionary monetary policy.
Let’s look at matters from a quantitative vantage point. NFLX stock is overvalued as its stock is trading at144x its cash flow. Additionally, NFLX stock is faced with a downward momentum spiral as it’s trading below its10-, 50-, 100-, and 200-day moving averages.
Stocks to Sell: Chevron (CVX)
This might seem like an odd culprit to many, but give me a chance to explain. Firstly, it’s likely that energy prices have peaked as interest rates are rising, which is likely to slow consumer spending power. In addition, supply-chains are gradually freeing up as the Chinese Purchasing Managers’ Index indices are gathering steam once more. The final systemic factor I’d mention is that non-core inflation — energy and food products — is more elastic than core inflation, meaning we could see a sharp drawdown in energy prices soon as consumer spending power starts to wane.
Don’t get me wrong, Chevron’s(NYSE:CVX) operations have been robust during the past year, as conveyed by its year-over-year revenue growth of84.52%. Nevertheless, at a price-to-book ratio of1.99x, it has to be concluded that CVX stock is overvalued.
Carvana (CVNA)
I personally classify Carvana(NYSE:CVNA) stock as a meme stock bubble asset. CVNA stock has slumped by more than 90% during the past year as investors discovered fault lines in the company’s business model. Carvana is in free fall as its high beta of2.59xexhibits excess sensitivity to 2022’s bear market. Furthermore, the company operates in the durable goods space, which is on a cyclical downturn as consumers cut back on expensive discretionary spending.
On a final note, Carvana is overvalued, with its stock trading at 27.32x its book value. Thus, I believe CVNA stock has a long way to drop before it trades at a realistic price.
