Stocks are surging right now. The Federal Reserve seems intent on cutting interest rates in 2024. That should help lift valuations for a broad swath of the U.S. equity market, but the stocks to sell out there are ready to burst.
With investors enjoying the prospect of cheap money again, irrational valuations are springing up to start 2024. These seven stocks to sell may seem like hot trading ideas today, but they will plummet when the current rally winds down.
Auto retailer Carvana (NYSE:CVNA) brought a unique idea to the vehicle industry. Through its online marketing, car vending machines, and aggressive used car purchasing programs, Carvana has tried to disrupt the user car industry.
This is certainly a field ripe for change; many used car dealers have an unscrupulous reputation, and a savvy tech platform could improve the user experience. However, it also has to be profitable.
So far, Carvana has been profoundly unsuccessful at the profitability problem. It has lost money every year dating back to 2014, and the losses have expanded over time. Carvana lost a stunning $1.6 billion in 2022 alone, but that’s not the only thing that makes this one of the stocks to sell now.
A few years ago, investors were willing to fund money-losing businesses seeming indefinitely. However, that patience has run out.
This week, rival Vroom (NYSE:VRM) announced that it is discontinuing its ecommerce operations and closing its used vehicle dealerships in the wake of large and unsustainable losses. Given Carvana’s heavy debt load and jaw-dropping operating losses, it seems like a matter of time until it follows Vroom’s lead.
Uranium Energy Corp. (UEC)
Uranium Energy Corp. (NYSE:UEC) is a uranium mining firm with operations in the United States, Canada, and Paraguay.
Nuclear stocks are popular again, and with good reason as the industry has staged a strong recovery.
But not all uranium stocks are created equal. UEC stock has surged 97% over the past 12 months, pushing its market cap up to a chunky $3.0 billion. That’s a huge number for a company that had a grand total of $108,000 of revenues last quarter.
Uranium Energy has a lot of uranium deposits that could one day be profitable mines. However, at this market cap, investors are putting a lot of faith in unproven assets.
Even with uranium prices at sky-high levels right now, analysts expect the company to lose money in 2024. If uranium prices slide again, you’ll see why this is one of the stocks to sell before they pop.
Advanced Micro Devices (AMD)
Bears love to bash Nvidia (NASDAQ:NVDA), claiming that chip maker is overvalued after its remarkable run. That may or may not be the case. But at least Nvidia is generating massive revenue growth and large profits.
What if you had the same AI hype but not much in the way of actual revenue or profit growth? You’d be describing Advanced Micro Devices (NASDAQ:AMD).
Advanced Micro Devices saw its profits collapse in 2022 as the computing market slowed down after its pandemic-era boom. Recent results haven’t been much better. Last quarter, both revenues and non-GAAP earnings per share grew just 4%, which is hardly the sort of figures you’d expect given the vast amounts of AI hype.
AMD stock has more than doubled over the past year, even as the underlying business has hardly any traction at all. Shares are selling at more than 60 times forward non-GAAP earnings and a stunning 88 times EV/EBITDA.
Nvidia has proven to be a real winner from the AI wave; however, other firms like AMD have seen their share prices skyrocket without any similar rise in their underlying financial results. That would make AMD one of the semiconductor stocks to sell soon.
Marvell Technology (MRVL)
Marvell Technology (NASDAQ:MRVL) is another semiconductor company that is up dramatically on AI excitement despite little sign of it benefitting their actual business.
Barclays, for example, tagged Marvell as a potential winner from the so-called second wave of AI. Marvell’s team has talked about AI a lot and people are tagging it as a beneficiary.
However, there’s not a great deal of evidence that Marvell’s system-on-a-chip solutions are going to be in the center of the AI revolution.
In fact, despite all the AI chatter, Marvell’s actual fiscal year 2024 revenues are set to fall about 7%, with analysts seeing a modest 11% revenue growth rate in fiscal year 2025. Unless Marvell’s revenue growth rate dramatically improves, it’s hard to see why this firm should be worth a lofty 46 times forward earnings.
Affirm Holdings (AFRM)
Affirm (NASDAQ:AFRM) is a FinTech company seeking to commercialize buy now, pay later “BNPL” solutions.
This allows consumers to pay for purchases over a series of monthly payments rather than all-at-once. BNPL has existed in many overseas markets for decades but is less common in America.
In theory, Affirm and other BNPL players could have built a nice niche business. However, Affirm has struggled with execution.
The company generated a modest operating loss of $75 million in 2020. But as the company has tried to grow, its operating losses have mushroomed. The company lost $331 million in 2021, $796 million in 2022, and ran a jaw-dropping $982 million operating loss in 2023.
Making matters worse, Affirm has engaged in wildly unprofitable lending during a boom for the consumer lending industry. Other firms, such as credit card companies, were enjoying strong results over the past few years.
Now, however, conditions are turning sharply more negative with write-offs and delinquencies rising in the consumer credit industry. Affirm generated massive losses during a boom for the industry, now that a bust is setting in, things will go from bad to worse for this struggling FinTech.
Abercrombie & Fitch (ANF)
Mall retailers have had their difficulties over the past decade. Mostly downs, however, as much of commerce has moved away from malls and onto e-commerce apps.
Department stores have largely disappeared, and many other apparel mainstays of 20 years ago are struggling as well.
Abercrombie & Fitch (NYSE:ANF) has bucked the trend, though. With a stunning 260% rally over the past year, ANF stock has reached new all-time highs surpassing the prior peak from back in 2007.
Give the company a ton of credit; it has reinvented its brands and generated real consumer enthusiasm again. I have a lot of respect for the job management has done in turning the company around.
That said, apparel is a tough business, and that’s doubly true with the competition from online commerce. The company will have to keep getting everything right to support its record-high stock price.
Any strategic missteps or overall slowdown in consumer spending will likely cause ANF shares to give back a big chunk of their recent surge.
Symbotic (NYSE:SYM) is a robotics company focused on warehouse logistics and automation.
Traders have gravitated to SYM stock over the past year as shares have nearly tripled. This is likely due to the company’s purported AI technologies that power its robotics solutions.
However, short sellers have alleged that Symbotic is still in prototype stage and that its products are far less cutting-edge than the bulls would have you think.
Symbotic generated $1.2 billion in revenues for fiscal year 2023, which is low for a company with a $25 billion market cap. Symbotic will need to grow its profits and revenues dramatically, otherwise shares are set to tumble whenever AI enthusiasm starts to wane.
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.