Admittedly, bailing on over-hyped stocks to sell can seem like a regretful move in the near-term. Flying in the face of the Wall Street adage “let your winners run,” it’s common to feel regretful when you sell said hot stocks, only to see them get even hotter and head higher.
Yet, while it may at first seem like you are leaving money on the table selling, exiting from stocks benefiting heavily from hope and hype right now could prove to be a shrewd move in hindsight. The latest meme wave, driven by famed meme stock investor Keith (Roaring Kitty) Gill is clearly fading.
The popularity of AI stocks has benefited from a resurgence lately. But it’s unclear whether fear, uncertainty and doubt (FUD) about the future growth for this space will soon emerge once again. Atop this, momentum plays are at risk of running out of runway, as concerns about higher for longer interest rates and other macro factors continue to climb.
With this in mind, it may be high time to take profit, with the following seven over-hyped stocks to sell.
Apple (AAPL)
Apple (NASDAQ:AAPL) may not be the first “Magnificent 7” stock that comes to mind when you think over-hyped. But, consider how much the tech giant still has to prove, when it comes to capitalizing on the generative artificial intelligence (AI) growth trend.
Yes, AAPL stock could keep surging, if the company makes a splash with its AI unveiling at this week’s Worldwide Developers Conference (WWDC). However, pretty soon, concerns about Apple iPhone sales could once again start to overshadow the AI hype. As I recently argued, weak iPhone demand, especially in China, threatens to continue affecting the company’s overall fiscal performance and growth.
With shares currently changing hands a pricey 30 times forward earnings, a shift in sentiment back to bearish may mean a massive de-rating ahead for AAPL. Trading in the $190s today, shares could easily retest their 52-week low of $164.08 per share, or worse, head back to even lower prices. If this was merely a story of Apple doing okay overall, but possibly getting an extra boost from AI mania, it would be a different story. Yet as iPhone headwinds remain, selling existing positions into strength is the better move.
C3.ai (AI)
C3.ai (NYSE:AI) has once again become one one of the most over-hyped stocks to sell. Yes, AI has not only benefited from the latest resurgences in AI and meme stock popularity. Alongside this, the enterprise AI software company recently released an earnings report that was well-received by the market.
However, longstanding concerns have not gone away completely for AI stock. Although growth last quarter re-accelerated year-over-year (YOY) and quarter-over-quarter (QOQ), it’s unclear how much C3.ai’s rate of growth will increase, as it completes its transition to a subscription-based revenue model. Another question that remains unanswered is when the company will become consistently profitable. Sell-side forecasts still call for net losses to persist through 2026.
Therefore, it makes sense that the short side of the trade with AI remains very crowded, at around 31.9% of outstanding float. Any sort of stumble in the coming quarters, with growth and/or with its path to profitability, could lead to a severe correction for shares. Given the many other fundamentally-strong AI plays, why mess around with C3.ai?
AMC Entertainment (AMC)
AMC Entertainment (NYSE:AMC) briefly gained from the aforementioned Roaring Kitty rally. Yet, as meme mania heads into the sunset once again, a further sell-off likely awaits for this former “meme king.”
Why? As Louis Navellier and the InvestorPlace Research Staff recently argued, AMC stock is caught in a lose-lose situation. First, consider movie theater attendance, amid the industry continuing to make a sluggish post-Covid19 recovery. This is a factor outside of management’s control but key for AMC’s financial health. Second, with this underwhelming industry recovery, AMC is struggling to experience the rebound in necessary profitability to pay down debt through cash flow.
As a result, the company faces a tough choice. AMC can either continue to dilute shareholders to raise equity, or simply contend with continued net losses, which will further call into question the stock’s valuation. To add to Navellier’s bearish points, consider the fact that there’s a much better movie theater play out there: Cinemark Holdings (NYSE:CNK). CNK is profitable and trades at a reasonable 14.2 times forward earnings.
GE Aerospace (GE)
GE Aerospace (NYSE:GE) is another that may be controversial to consider as one of the over-hyped stocks to sell. After all, it’s not as if GE has surged because of “meme mania” or “AI mania.” Rather, investors have bid up the former conglomerate, now aerospace pure play, for other reasons.
At least, that’s the bullish narrative being disseminated regarding GE stock. Per the bulls, as safety concerns with Boeing (NYSE:BA) affect delivery of enough new aircraft to meet demand, existing aircraft are likely to stay in the skies longer than previously anticipated. This means more demand for parts and maintenance – good news for aerospace suppliers like GE.
However, it’s possible that the market is overestimating how much this will affect GE’s growth and profitability going forward. How so? Take a look at GE’s forward valuation. Shares today trade at 40 times forward earnings, a high multiple for an “old economy” industrial stock. If the above-mentioned tailwinds aren’t as strong as expected, GE could go from a high flier to a stock facing heavy turbulence.
Eli Lilly (LLY)
Similar to the situation with GE Aerospace, Eli Lilly (NYSE:LLY) is another potential case of the market putting the cart before the horse regarding a growth catalyst. Actually, two growth catalysts exist. That is, this pharma firm is sitting pretty, with the success of its diabetes and weight-loss treatment Mounjaro.
Alongside Mounjaro is another promising candidate in the pipeline that’s driving heavy hype for LLY stock right now. That would be donanemab, Lilly’s candidate for the treatment of Alzheimer’s disease. Per analysts at Bloomberg Intelligence, donanemab is a mega-blockbuster drug in the making. By 2030, it may have 50% of a $13 billion per year Alzheimer’s drug market.
Even so, consider that LLY trades for around 61.8 times forward earnings. There’s validity in questioning whether or not both these growth catalysts are already baked into the stock’s valuation. After more than doubling in price since early 2023, at best, further gains for Eli Lilly shares could be far less stellar. At worst, disappointment could lead to a massive reversal. If you bought in before hope and hype for Mounjaro and donanemab took shape, consider it high time to take profit.
Reddit (RDDT)
Reddit (NYSE:RDDT) has been rallying lately, and not for reasons you may think. This rally has coincided with the recent resurgence in popularity of meme stocks. However, it’s not as if investors have bought RDDT just because its eponymous social media platform is heavily associated with the trend.
Rather, investors have bid up RDDT stock, in large part due to AI-related news. On May 16, the company announced a collaboration with ChatGPT developer OpenAI. As a result of this partnership, Reddit content will be made available to ChatGPT. In addition, new AI features will be integrated into Reddit’s platform. Even so, it’s not as if this is a surprise development.
As I discussed in an article on RDDT shortly after its IPO earlier this year, AI licensing was one of several potential catalysts hyped up at its public market debut. So before this recent rally, RDDT’s valuation may have already factored-in this catalyst. Hence, it’s very possible that once the market digests this news, RDDT, one of the over-hyped stocks to sell, falls back from nearly $60 per share, back on down to the low-$40s per share.
Tesla (TSLA)
Two months back, it seemed as if Tesla (NASDAQ:TSLA) was en route back on down to multi-year lows. However, since then, shares in the electric vehicle (EV) maker have bounced back. Namely, this is due to renewed hope and hype regarding one of the company’s sexier growth catalysts, the Robotaxi.
Other developments have contributed to this warming back up in enthusiasm about TSLA stock. However, don’t assume that the renewed bullish sentiment will continue. Pretty soon, concerns could be back on the radar of investors, such as Tesla’s sales and margin issues. Recent vehicle shipment data and fiscal results suggest that the company is struggling in China. Also, Tesla may be facing trouble in the European EV market as well.
Tesla may consider itself a “tech company that happens to build cars,” but if its bread-and-butter automotive division keeps on struggling, look out below. It’s only a matter of time before investors realize that paying 70 times earnings for a cyclical automaker makes little sense, especially as more promising EV stocks, like BYD (OTCMKTS:BYDDF), trade at far less steep valuations.
On the date of publication, Thomas Niel did not hold (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.
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