“Let your winners run.” That’s the advice I gave two months ago in arguing for investors to not take profits on winning investments even if they seem like overvalued stocks. Doing so undercuts your portfolio’s returns. I stand by that advice. But as they also say, never say never.
By and large I am a buy-and-hold investor. I’m willing to let languishing stocks languish (ask me about my Warner Bro Discovery (NASDAQ:WBD) investment!) while letting more successful investments like Exxon Mobil (NYSE:XOM) keep growing (drill, baby, drill!). My winning stocks will more than make up for the few losers I inevitably buy.
Still, some investors prefer protecting their downside a bit. Selling stocks that are at new highs doesn’t mean they are bad companies. It just means you can lock in some profits. It might not be the optimal investing strategy but it’s not a bad one.
So investors just might find these three companies that hit 52-week highs are stocks to sell before their bubble bursts.
Caterpillar (CAT)
Heavy equipment manufacturer Caterpillar (NYSE:CAT) is definitely one of those stocks that isn’t a bad company to be sold just because it hit a 52-week high. However, it is a cyclical stock and though several tailwinds could push it forward, it also faces some headwinds. It’s an example of a stock I would normally recommend holding long-term but could see someone wanting to take profits before a downturn arrived.
Some of CAT’s tailwinds include the $1.2 trillion infrastructure spending bill and the surprising resiliency of the U.S. housing market. Stacked up against that is a commodities market that could soften globally, or at least make comparisons to last year difficult. Also, Minneapolis Federal Reserve Bank President Neel Kashkari recently said interest rate cuts could be withheld if inflation remains unsettled. That could throw the housing market and other industries into turmoil if the cost of capital remains high. Caterpillar also faces stiff competition in foreign markets which could challenge revenue and profits.
While the equipment maker was able to raise prices in the most recent quarter, helping to boost sales to $17.1 billion, sales volumes declined. Sales are expected to grow less than 1% this year and earnings will stay essentially flat. CAT stock’s cyclicality just might be coming into play at these new lofty heights.
DoorDash (DASH)
DoorDash (NASDAQ:DASH) is the leading third-party delivery service with a 67% share — almost three times greater than Uber Technologies (NYSE:UBER) 23% share with Uber Eats. GrubHub comes in a distant third with an 8% share. DoorDash is likely to maintain that commanding lead as the market devolves into a duopoly between it and Uber.
While delivery services got a big boost during the pandemic the effects have worn thin as normal dining habits resumed. Foot traffic at big restaurant chains is growing, according to data from geolocation services firm Placer.ai. Casual dining establishments like Darden Restaurants (NYSE:DRI), which owns Olive Garden and LongHorn Steakhouses saw visits above 2023 levels. Similarly, Panera Bread, which may go public again, is seeing strong traffic trends, too.
DoorDash will also need to adjust to greater regulation of gig economy companies. Dashers, or what DoorDash calls its drivers, are starting to get classified as employees in many places with minimum pay rates, health benefits and other perks of employees getting imposed. This could significantly raise costs and cut sharply into profit margins.
DoorDash is another company that won’t be going away after hitting a 52-week high. Yet it trades at nearly 100 times next year’s earnings, goes for 6x sales and 41x its free cash flow (FCF). Those are some lofty valuations even for a market leader. Based on those metrics alone DoorDash stock might be due to have its bubble burst.
Harley-Davidson (HOG)
Last is iconic motorcycle manufacturer Harley-Davidson (NYSE:HOG). An aging rider base, a focus on electric motorcycles and tougher competition are just some of the forces arrayed against Harley. They are many of the same ones the bike maker has confronted for years.
Harley long owned half of the heavyweight motorcycle market but its share fell from 44% in 2021 to below 38% last year. Polaris Industries (NYSE:PII), owner of the equally iconic Indian Motorcycle, gained share last year and has about 11% of the market.
Although revenue rose 1% in 2023, motorcycle sales fell 9% and operating profits declined 14%. In the U.S., its largest market, Harley sales dropped 10%. We are, however, entering the spring and summer months, which tend to be Harley’s strongest. That could explain its temporary lift.
Yet electric motorcycles aren’t faring any better. Despite spinning off LiveWire Group (NYSE:LVWR) into its own publicly traded company, Harley retains 74% ownership and CEO Joachen Zeitz is LiveWire’s board chairman. Harley’s CFO, COO and chief legal counsel all serve on the e-bike’s board. Sales of LiveWire’s e-bikes are financed through Harley-Davidson Financial Services.
LiveWire generated over $38 million for Harley in 2023, down 18% from the year before. It also sold just 660 e-bikes, far below the 7,200 Harley originally boasted it would sell when promoting the spinoff. The 100,000 e-bikes once forecast for 2026 is far, far out of reach, especially as the fervor for electric vehicles has subsided.
The stock’s new high is a good time to sell. Even though it trades at seemingly cheap multiples, this could be as good as it gets for the bike maker.
On the date of publication, Rich Duprey held a LONG position in WBA, XOM and PII stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.