The markets may be showing solid signs of improvement, but there are still many stocks to sell. In fact, in this environment of elevated interest rates, stocks with unrealistically high valuations are likely to come back to earth sooner rather than later. So, here are seven stocks to sell in April that are very likely to suffer that fate.
|RHI||Robert Half International||$75.32|
Stocks to Sell: CrowdStrike (CRWD)
CrowdStrike (NASDAQ:CRWD) faces tough competition in the crowded cybersecurity space, and has an extremely high valuation. Also noteworthy is that its official bottom line was actually negative last year. In my opinion, that’s likely a recipe for a steep decline of CRWD stock in the not-too-distant future.
Among the company’s tough, large competitors are Palo Alto (NASDAQ:PANW), Fortinet (NASDAQ:FTNT), and Check Point (NASDAQ:CHKP). Meanwhile, CRWD has a forward price-earnings ratio of 56.5 and an extremely elevated trailing price-sales ratio of 13.5. And last year its earnings from continuous operations came in at -182.3 million, while its operating income was an even worse -$190.2 million.
Moreover, after the company released its Q4 results last month, investment bank Stifel noted that the firm’s “top-line beat was below recent trends,” while the company’s end-of-year revenue surge was not as large as it usually is, The Fly reported. Stifel increased its price target on the shares to $125 from $110 but kept a “hold” rating on the name.
Stocks to Sell: Clorox (CLX)
As it becomes clear that the Fed is not going to raise interest rates to 6% and the U.S. is, in all likelihood, not heading for stagflation or a recession, the Street’s infatuation with staples stocks is going to end. That will spell bad news for one of America’ most famous staple names, Clorox (NYSE:CLX).
Another InvestorPlace columnist, Josh Enomoto, recently reported that CLX has a forward price-earnings ratio of 29 times. That’s a ridiculously high valuation for a name whose sales, excluding acquisitions,. are never going to increase more than a few percentage points annually. And Enomoto reported that “both its EBITDA and FCF growth rate over the past three years have been sitting in negative territory. ”
Also noteworthy is that Wells Fargo, in a note to investors on April 12, said it expects the company’s Q1 results to beat analysts’ average estimates, but still thinks that the shares are overvalued, as shown by the fact that it has an “underweight” rating on the name.
Stocks to Sell: Mullen (MULN)
Electric-vehicle maker Mullen (NASDAQ:MULN) spends very little on R&D, only putting $29 million towards the category last year. Also, its upcoming EV “looks much like a $5,000 Chinese-made car from Alibaba (NYSE:BABA),” another InvestorPlace columnist, Thomas Yeung, recently reported. Worse, Seeking Alpha columnist Bashar Issa wrote that “Mullen is essentially rebranding Chinese vehicles.”
Both of these items are negative for MULN. That’s because the low R&D spending suggests that its upcoming EVs will not have the features necessary to succeed in the highly competitive U.S. auto market, and lower-end, China-made EVs have not performed well at all in the U.S. Indeed, both Electrameccanica (NASDAQ:SOLO) and Ayro (NASDAQ:AYRO) –two EV makers that I had once been enthusiastic about — have seen their progress set back years, partly because they discovered that their Chinese-made EVs could not compete in America.
And, as I’ve written in previous articles, the past record of both Mullen and its CEO, David Michery, should not inspire a great deal of confidence among investors.
Robert Half International (RHI)
Although the U.S. labor market remains strong as a whole, jobless claims have been rising, and there are sectors that appear to be laying off large numbers of people. Specifically, banks, mortgage companies, and tech firms appear to be looking to reduce their workforces.
That does not bode well for Robert Half (NYSE:RHI), as two of the five fields in which the recruiting company specializes are “finance and accounting” and “technology.” With many laid-off employees in these fields looking for jobs, most companies will not need to hire Robert Half to find workers for them.
Providing evidence for my bear thesis on RHI stock, the recruiter’s revenue fell 3% year-over-year in the fourth quarter of last year, while its net income sank to $147.65 million from $167.9 million during the same period a year earlier. Further, the company’s forward price-earnings ratio of 15 is fairly high for a well-established company whose prospects are dimming going forward.
Charter Communications (CHTR)
Charter Communications’ (NASDAQ:CHTR) two main businesses — cable TV and broadband internet — are facing major threats. Of course, the phenomenon of cord cutting — American consumers getting rid of cable and relying only on much cheaper streaming options instead — is quite prevalent. Indeed, Charter lost nearly 700,000 net cable TV subscribers last year.
Charter and its peers have relied on gaining internet broadband customers to offset the cable losses. Last year, for example, Charter added nearly 100,000 net new broadband subscribers.
However, Charter is facing a new threat on that front, as T-Mobile (NASDAQ:TMUS) and Verizon (NYSE:VZ) have begun offering 5G home internet service. Moreover, Verizon is offering its 5G home internet service for only $25-$35 for month, which is much less expensive than the amount typically charged by cable companies like Charter. Indeed, Charter’s Spectrum advertises that it offers “Internet For As Low As $49.99” per month.
With Verizon undercutting Charter’s internet offerings and CHTR likely to continue to bleed TV subscribers, CHTR stock will probably tumble this year.
Kohl’s (NYSE:KSS) could very well be the next major primarily brick-and-mortar retailer to crash and burn. I’ve only been in its stores a handful of times in the past five years, but my impression has been that it does not offer great value or very high quality, while shopping in its stores is not very interesting. Moreover, at a time when many Americans are prioritizing spending on experiences over products, Kohl’s sales may trend sharply downward.
Already in the fourth quarter of last year, the retailer’s net sales sank 7% year-over-year, while its gross margins sank ten percentage points YOY.
And Seeking Alpha columnist Penny Wiser reported, “The company continues to face an intensified market share loss as consumers’ migrate to e-commerce channels, retailers with better value-for-money propositions…and retailers which have a diverse offering.”
Morgan Stanley last month started coverage of KSS stock with an “underweight” rating, as the bank noted that the retailer’s full-year top-line guidance “was 25% below analysts’ average outlook.”
FuelCell Energy (FCEL)
FuelCell’s (NASDAQ:FCEL) valuation continues to be extremely excessive, given its previous performance and its outlook.
Specifically, FCEL stock has a forward price-sales multiple, based on analysts’ average 2023 revenue estimate of $136 million, of nearly seven times. That’s a very high multiple, especially considering that the mean 2023 sales estimate only calls for the company’s top line to climb 45 this year.
Moreover, in the firm’s last reported quarter, its EBITDA, excluding certain items, came in at -$14.4 million, below its adjusted EBITDA of -$13.6 million during the same period a year earlier. Further, its backlog tumbled 19% year-over-year.
Finally, analysts, on average, still expect the company’s free cash flow to be negative for the next two years, and, as of last month, the company was unsure whether any of its offerings will qualify for tax breaks under the democrats’ climate law.
On the date of publication, Larry Ramer 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.