Warren Buffett famously said that investors should be “fearful when others are greedy and greedy when others are fearful.” So with many on the Street starting to get greedy, as demonstrated by the market’s huge rallies in recent months, a case can be made that investors should start to become more fearful than they were previously. I’m not saying that I’m turning bearish on stocks. I actually remain very bullish, for the most part, on U.S. equities. But, because of the Street’s overall lack of fear and the optimism about technology and a few other sectors that’s gripping investors, some names have soared too high too quickly. With that in mind and in the spirit of Buffett’s quote, here are three stocks to sell which are at or near their 52-week highs.
Sherwin-Williams (SHW)
A seller of paint and related products, Sherwin-Williams (NYSE:SHW) is quite dependent on the housing market, as consumers frequently paint homes after buying them.
There’s a great deal of disagreement as to whether the housing market will remain strong or greatly weaken in the months and years ahead. And therefore, whether or not housing related companies should be stocks to sell. Some say that higher mortgage rates will cause the demand for housing to sink over the medium term and the long term, while others say that the lack of supply will enable it to remain resilient.
For now, I’m taking a nuanced view of the market’s outlook. Specifically, I believe that the sector could remain resilient for awhile before weakening somewhat under the weight of high rates, rebounding supply and, in certain markets, the easing of the work-from-home trend.
Moreover, in the medium term, SHW could be hurt at the margins by the work-from-home trend as well, since office buildings do have to be painted, too.
Also noteworthy is that inflation could theoretically rebound, causing mortgage rates to jump again and further dent the housing market.
After its advance in recent weeks, the forward price-earnings ratio of SHW is 32.25, which is not very attractive.
Airbnb (ABNB)
In a note to investors last month, Wells Fargo (NYSE:WFC) initiated Airbnb (NASDAQ:ABNB) with an “underweight” rating. The firm believes that the Street’s 2024 and 2025 margin estimates for ABNB are too high, and it thinks the company’s 2024 and 2025 EBITDA will come in 5% and 11% below analysts’ average estimates.
Also making Wells less upbeat on ABNB are “Moderating share gains vs. hotels and persistent regulatory risk.” Wells placed a $99 price target on the shares, nearly 33% below the stock’s current level. Also boding ominously for Airbnb are signs that hotel prices are slipping.
ABNB stock is far from cheap at this point, as its forward price-earnings ratio is 40.3.
Palantir (PLTR)
Palantir (NYSE:PLTR) has soared to 52-week highs on optimism about its use of artificial intelligence (AI). However, although PLTR has utilized “machine learning,” a form of AI, for many years, I’ve seen no evidence it made a major investment in the technology before this year.
Specifically, in April it announced that it was developing an AI platform. Given the company’s relative lateness to the game when it comes to AI, I have doubts about how much it will benefit from the technology.
Moreover, my previous research about the company has indicated that it did not have any major competitive advantage when it comes to AI. In light of these points, I believe that the current euphoria about the benefits that the company will realize from AI is likely overblown.
Also noteworthy is that, despite the fact that PLTR was launched 20 years ago, it’s barely profitable. Last quarter, for example, its net income came in at a rather paltry $17 million. And the company’s forward price-earnings ratio of 82, along with its huge trailing price-sales ratio of 19, are extremely high, making the name’s valuation quite unattractive. To me, Palantir is checking all the boxes when looking for stocks to sell.
On the date of publication, Larry Ramer 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.
