The Nasdaq is absolutely on fire. The broad macroeconomic picture has been about as good as it could get for growth stocks.
The economy is not too hot and it’s not too cold. Inflation is coming down, and the Federal Reserve may be set for interest rate cuts later this year, even as asset prices remain strong.
As a result, traders are piling into Nasdaq stocks. We’ve seen momentum trades break out to the upside in categories such a semiconductors and artificial intelligence. This all makes sense from a macroeconomic perspective.
But not all of these surging Nasdaq stocks are going to see continued prosperity. In fact, many appear to be setting up for steep declines once the current hype cycle wears off. These are seven Nasdaq stocks to sell before they really start to tank.
Nasdaq Stocks to Sell in April: Apple (AAPL)
Apple (NASDAQ:AAPL) is a great example of how investors have assigned high valuations to many leading Nasdaq stocks for years.
Investors have viewed Apple as a safe haven. There was no need to worry about its lofty valuation because it had a dominant hold on the smartphone market. It was considered a defensive stock and folks bought AAPL shares without any concerns around interest rates or a potential recession.
You could say that Apple has an effective tax on the communications market. The problem should be evident now that the government is taking aim at its purported monopoly on high-end smartphones.
Apple’s defensive nature has been called into question. Only time will tell if the government succeeds in limiting Apple’s allegedly monopolistic powers or perhaps even breaking up the company entirely. Regardless, 27 times earnings seems excessive for a business that has barely grown in recent years and which has a huge amount of exposure to the struggling Chinese market.
Apple stock is suddenly quite a terrifying thing to hold at this elevated starting valuation. Traders should use the antitrust lawsuit news to exit AAPL stock before its overvaluation is exposed.
Tesla (TSLA)
At first glance Tesla (NASDAQ:TSLA) might not seem like the most obvious Nasdaq stock set to plummet.
After all, hasn’t Tesla already dropped dramatically, at least, in comparison with the rest of the market?
The thing is, however, that Tesla was starting from an exceedingly high valuation. It had a triple-digit price-to-earnings (P/E) ratio at various points in recent years. That’s a simply ludicrous level for what is, at its core, a car manufacturing company.
Tesla has now pulled back to about 50 times earnings which is less egregious than before. But 50 times earnings is still a huge number for an automotive firm.
Furthermore, there’s no guarantee that those earnings will grow either. If anything, with the price cuts and mountains of competition in the EV space, earnings could be set for a considerable decline in coming years. Elon Musk’s erratic behavior on social media could also dissuade potential Tesla buyers. Multiple analysts have also downgraded TSLA stock recently.
All this suggests that the Tesla stock could plunge much further in a Nasdaq bear market.
Nasdaq Stocks to Sell in April: Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD) is one of the companies that has been central to the recent artificial intelligence (AI) and semiconductor themes.
AMD has been a longtime rival to Nvidia (NASDAQ:NVDA) across various markets. Traders are hoping that AMD will be able to cash in on some of the same trends that have powered Nvidia’s exponential rise over the past year.
Many bears have been quick to say Nvidia is a bubble stock selling at an unfathomable valuation. However, say what you will about the sustainability of Nvidia’s business, but it is earning a ton of money right now.
AMD by contrast has been far slower in launching its AI products. And as a result, its profitability is limited to say the least. While AMD now has a nearly $300 billion market capitalization it is earning less than $1 billion per year of net income. This puts it at a shocking 345 times trailing earnings. Shares also go for 13 times revenues and a jaw dropping 260 times free cash flow. These are figures that make even the dot-com stocks of the 2000 bubble look reasonable by comparison.
Perhaps the AI boom will be strong enough and persist long enough that even the second-tier slow-to-market companies like AMD will eventually cash in. If not, however, AMD stock seems set for a crash so large it will be recorded in the history books.
Costco (COST)
It might be a surprise to hear that Costco (NASDAQ:COST) is a Nasdaq stock at risk of major downside. What’s Costco doing on the Nasdaq in the first place?
While the Nasdaq is mostly tech-oriented growth stocks, there are some names from other sectors as well, including club retailer Costco. Indeed, COST stock is part of the flagship Nasdaq 100 Index. And like many of its peers, Costco has become wildly overvalued.
Costco recently reached $750 per share. That’s a gigantic move given that the stock was under $500 not all that long ago. In total, the stock is up 54% over the past year. This has pushed COST stock up to a baffling 46 times this year’s estimated earnings.
Meanwhile, analysts are projecting just 5% revenue growth for the year and the firm just missed earnings last quarter. As a brick-and-mortar retailer there’s only so much Costco can do to grow. It has already built stores in most of the best possible locations. Costco is not a particularly strong player in e-commerce, limiting growth from that channel as well.
It’s a mature company that has significant limits to growth. Investors are about to discover that paying 46 times earnings for a slow-growing retailer usually doesn’t end well. A tech company may be able to grow its way out of this sort of inflated P/E multiple. A big box store almost certainly will not.
Nasdaq Stocks to Sell in April: Monster Beverage (MNST)
Monster Beverage (NASDAQ:MNST) is another one of the more surprising companies in the Nasdaq 100 Index. Despite not being a tech company, however, Monster has certainly proven to be a quality growth stock over the years. Shares are up more than 400% over the past decade.
However, Monster may now be living off its past accomplishments. The energy drink market is saturated. The U.S. market and various international markets now have tremendous distribution of energy drinks and there are fewer new consumers left to reach.
Monster also benefited from strong consumer spending as the economy came roaring hot out of the lockdowns. But that tailwind will let up at some point, particularly as consumers struggle with the impacts of higher inflation and food prices.
Monster also faces more competition. In particular, Celsius Holdings (NASDAQ:CELH) has created a highly competitive product that has shown absolutely sizzling growth in recent years. In many ways, Celsius today could be what Monster was 10 or 15 years ago.
Monster is now a mature company with a much slower growth rate. As such, MNST stock’s 35 P/E multiple is far too high as it runs out of juice.
Airbnb (ABNB)
Compared to many of the companies on this list, Airbnb (NASDAQ:ABNB) might seem like a relative value at around 25 times earnings. The travel and hospitality company has built a strong platform around sharing homes and apartment rooms.
The company also did a tremendous job of maintaining its business’ core advantages during the Covid disruption and it has fully cashed in on the travel recovery trend of the past few years. But the growth is coming to an end.
Airbnb is no longer a plucky newcomer. Nowadays, most savvy travelers are quite familiar with Airbnb and either regularly use the platform or have rejected it for one reason or another. Growth will be much harder to come by as Airbnb can’t grow simply from word-of-mouth advertising anymore.
There’s also increasing pushback as Airbnb’s prices have escalated. Oftentimes Airbnb is more expensive than just using a hotel nowadays. Consumers are complaining about excessive fees, cleaning costs, and so on.
Finally, there’s a great deal of regulatory pushback. Cities like New York and Barcelona have put severe limitations in place on Airbnb’s business model. It’s not just a couple of huge cities, either. Increasingly even cities in emerging markets such as Medellin, Colombia are greatly limiting the short-term rental market.
Combine a slowing travel sector, increasingly expensive product, and mounting regulatory pushback – that’s a recipe for significant declining Airbnb share price.
Dexcom (DXCM)
Do you remember the weight loss drug phenomenon from last fall? How GLP-1 drugs were going to wipe out packaged foods companies, alcohol producers, and more? The knives were also out for the healthcare companies that treated people with obesity and diabetes.
Fast forward six months, and it’s as if that risk never happened. Diabetes monitoring and management company Dexcom (NASDAQ:DXCM) is a leading example of this.
Dexcom shares fell more than 30% last fall as analyst suggested that fewer people would use the company’s glucose monitoring solutions thanks to the weight loss drugs. Some people were suggesting that the whole diabetes management field might become obsolete.
The claims around the speed and efficacy of the weight loss drugs were probably hyperbolic to a degree. That said, there is something real. The GLP-1 drugs are still gaining momentum – more people are taking these drugs as doctors are becoming comfortable with prescribing them.
As long as the trend toward GLP-1 drug usages continues, that should help limit the population of folks dealing with chronic diabetes. This, in turn, will have an impact on Dexcom’s available market for glucose monitoring solutions.
DXCM stock has regained all of its losses since last year. That seems overdone given the longer-term questions to the business model. As if that weren’t enough, Dexcom shares are trading for more than 60 times forward earnings.
On the date of publication, Ian Bezek 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.
