Sometimes, the trading price of a stock may seem too good to be true. That’s often because it is. Company valuations are a tricky business, they are often tied to a complex combination of financial performance and public perception. This can result in some companies listing as being worth more than their true intrinsic value on the stock market.
In times of inflation, the ultimate method of retaining wealth is holding appreciating assets instead of cash. As the value of cash depreciates, and buying power lessens, holding stocks that are overvalued could hurt long-term portfolio growth, as price corrections are inevitable.
Furthermore, the market continues to look more and more like the bears are coming out, investors may want to consider which stocks are promising more than they can deliver. Thus, here are three of the most overvalued stocks to sell, should the market take a turn for the worse.
Tesla (TSLA)
As the revolutionary leader in electric vehicle technology, Tesla (NASDAQ:TSLA) has consistently struggled with overvaluation. For many years, the company has consistently delivered on expectations, despite offering a product with questionable demand. That’s because, even though the electric car sounds like a life-changing technology, most people simply cannot afford a Tesla.
Thus, the company offers a premium solution in search of a marginal problem. As global economic factors like inflation and supply chain scarcity have squeezed consumers, many have begun questioning the real value of owning an electric car. Moreover, questions regarding range reliability in cold weather and overall travel practicality have begun eroding demand, thus slowing Tesla sales.
Pair this with recent restructuring efforts by Elon Musk, which led to a 10% workforce reduction, and the writing may be on the wall for Tesla. Though the company is certainly not going anywhere, investors who entered overvalued positions on the stock may want to consider a sale until the price corrects some more.
Dell Technologies (DELL)
When was the last time Dell Technologies (NYSE:DELL) delivered an exceptional product? The company dominates neither the gaming sector or the creative sector, and its enterprise laptops are lackluster. Competitors from Apple (NASDAQ:AAPL) to ASUS (TPE:2357) have consistently provided better, more complete machines than Dell.
Why is it, then, that the company’s stock price has soared nearly 170% in the last year? A major contributing factor has been the company’s savvy partnerships with AI companies to provide server solutions. This, however, could genuinely be a product of hype, as the firm’s bottom line may not see the long-term growth in server sales necessary to maintain such an inflated share price.
Moreover, the company’s AI servers essentially offer packaged, inflexible iterations of NVIDIA’s (NASDAQ:NVDA) data center Graphics Processing Units. Considering the cost of these GPUs, it’s likely that Dell’s margins are much thinner than the sales numbers might lead us to believe.
Southwest Airlines (LUV)
Tech companies aren’t the only stocks at risk of overvaluation. Take, for example, airline companies like Southwest Airlines, (NYSE:LUV) which occupies an awkward operational niche. Somewhere between a major international airline and a domestic regional one, Southwest Airlines’ cost of revenue holds back its earning potential. The reason, however, has little to do with customers, and everything to do with aircraft choices.
Due to its size and niche as a domestic airline, Southwest chose to operate Boeing 737s as its sole aircraft type. Considering the present scandals surrounding the aircraft, Southwest likely has some issues in its future. Furthermore, the airline focuses almost exclusively on profitable routes within the U.S. borders.
While this helps mitigate revenue costs, it limits the airline’s growth and exposure to new customers. The combination of these two factors could make Southwest one of the overvalued stocks to sell, should market conditions worsen.
On the date of publication, Viktor Zarev 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.