The S&P 500 index surged an impressive 25% from November to April, showcasing a robust start to the year. As of April 12, the market’s year-to-date return stands at 9%, despite a compound annual growth rate of 13.7% over the past five years. A pivotal question arises:
When is the optimal time for investors to sell stocks and secure their gains?
This article relies on by eyestock.io – stock valuation company providing ratings and valuations based on P/E analysis, historical data and benchmarking across 10 key stock metrics.
What proportion of companies in the top 10 by market cap are undervalued stocks? Their findings reveal that among the giants, only AMZN and BRK qualify as undervalued stocks. In contrast, stocks such as MSFT, META, and even LLY are overvalued. The remainder, though deemed fair by Eyestock standards, are trading 14% above their median valuations.
Today, we boldly spotlight 6 stocks that, irrespective of potential declines in May or continued market ascension, appear overheated and are prime candidates for the strategy “sell in May and go away.”
First, Consider Southern Copper Corp (SCCO), an entity deeply embedded in the mining of copper and other minerals, headquartered in Arizona. Despite a decline in both revenue and net profit in the previous year, SCCO’s stock price has surged 35% since the start of the year. According to Eyestock, this places SCCO stocks as overvalued, with a price 13% above its historical high.
Similarly, KLA Corp (KLAC) mirrors SCCO’s situation, where poor financial outcomes are juxtaposed with rapid price increases, marking KLAC stock as overvalued by 15% against its peak P/E ratio.
Third, Lam Research Corp (LRCX) presents a stark case of valuation extremes. The firm’s stock has sextupled over the past five years, achieving remarkable growth. Currently, however, its P/E ratio stands at 38, far surpassing its 5-year median of 18.5, rendering LRCX the most overvalued stock in our analysis, priced 50% above its average and 18% above its peak valuation.
Next, While Cintas Corp (CTAS on Nasdaq) and Cadence Design Systems Inc (CDNS on Nasdaq) boast impressive Eyestock ratings and stellar financial performances, Abbvie Inc (ABBV) falls short in the healthcare sector, according to our analysis. We have recently discussed top ideas in this area. However, a common thread among these three stocks is that they are trading 5-7% above their historical P/E highs. This significant metric has led us to classify them as overvalued stocks.
Finally, Microsoft continues to demonstrate strong performance; however, as we’ve noted previously, over the last five years, it has consistently avoided crossing the red line on our charts. This line represents the peak historical ratio between the company’s market capitalization and its net profit. As of April 12, 2024, MSFT stock is priced at $421.9, marking a 6% increase over its maximum historical value.
Can you guess one more stock is usually considered well-performing but is in fact greatly overvalued? Visit eyestock.io platform and to find out by reading their original blog post.
