Although it’s an ugly topic, disciplined investors seeking consistent success in the market should not shy away from overbought stocks to sell. That is, one should never be too emotionally attached to their investment ideas. Like anything in life, a good deal can become too good, requiring some trimming.
Now, to be 100% clear, when looking to unload overbought stocks, we’re simply managing personal risk. Believe me, the C-suite behind the companies you wager on doesn’t care if you end up holding the bag or not. Therefore, it’s just better to look out for number one.
Again for clarification, the concept of warning stocks to sell is far different from shorting securities. Put another way, you’re just getting maximum value out of your wagers. Once these overbought entities become undervalued, you can buy back in at a discount.
Cactus (WHD)
Headquartered in Houston, Texas, Cactus (NYSE:WHD) designs, manufactures, sells, and rents a range of highly engineered wellhead and pressure control equipment. Per its public profile, the company’s products are sold and rented principally for onshore unconventional oil and gas wells. While it might seem like a relevant business, Wall Street has other ideas. Since the Jan. opener, WHD slipped almost 15%.
Nevertheless, in the trailing month, WHD popped up slightly over 13%. However, based on the relative strength indicator, WHD’s price action nears technically overbought territory. More critically, Cactus runs out based on key financial metrics. For example, the market prices WHD at a trailing multiple of 20.4. This stat ranks worse than 80.24% of companies in the oil and gas industry. Thus, WHD seems like one of the overbought stocks to sell.
Also, WHD trades at a sales multiple of 4.15. However, the underlying sector runs a median sales multiple of only 0.91. If that wasn’t enough, WHD is also extremely overpriced relative to tangible book value and operating cash flow. If you want to unload overbought stocks, you might want to look at WHD.
Verra Mobility (VRRM)
Based in Mesa, Arizona, Verra Mobility (NASDAQ:VRRM) is committed to developing and using the latest in technology and data intelligence to help make transportation safer and easier. According to its corporate profile, Verra serves the world’s largest commercial fleets and rental car companies to manage tolling transactions and violations for millions of vehicles. While relevant, VRRM may be one of the overbought stocks to sell.
One clue centers on its mercurial performance. Since the beginning of the year, VRRM gained over 37% of its equity value. In the trailing year, shares moved up nearly 23%. Currently, VRRM’s RSI clocks in at 67.77, which is very close to being technically overvalued. Also, the financial metrics aren’t inviting at all.
Presently, the market prices VRRM at a trailing multiple of 42.67. This stat ranks worse than 85.54% of its peers. Also, shares trade at a forward multiple of 17.6%, worse than 67.25% of rivals. If that didn’t raise eyebrows regarding warning stocks to sell, Verra trades at 3.98 times sales, unfavorably above 89.63% of the competition. It’s not a bad company per se given its high growth and strong profit margins. Thus, it’s one of the names for reducing overbought stock holdings.
Installed Building Products (IBP)
Hailing from Columbus, Ohio, Installed Building Products (NYSE:IBP) is one of the nation’s largest new residential insulation installers. Per its public profile, Installed Building offers complementary building products, including waterproofing, fireproofing, garage doors, rain gutters, and window blinds, among many others. Based on its chart performance, IBP seems like a resoundingly bullish candidate, driving up over 53% since the Jan. opener.
Unfortunately, IBP appears a bit overcooked. Right now, its RSI clocks in at 63.47, near overbought levels. But just a few sessions ago, shares traded well within the “hot” zone. Therefore, IBP seems like one of the overbought stocks to sell.
To be fair, Installed Building features a three-year revenue growth rate of 22.3% (per-share basis), above 83% of sector rivals. Also, the company is consistently profitable. However, it also runs a forward multiple of 17.14. This stat ranks worse than 86.49% of enterprises listed in the homebuilding and construction industry.
Further, IBP trades at 1.44 times sales, a hot premium over the sector median of 0.69 times. Thus, if you’re looking to sell stocks before it’s too late (speaking strictly from a tactical perspective), IBP should be on your radar.
On the date of publication, Josh Enomoto 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.
