It’s Time! 3 Overheated Dow Stocks to Sell in February
The stock markets have been on a hot run for many months on the back of renewed enthusiasm due to rates and the continued run in artificial intelligence (AI).
Undoubtedly, last week’s consumer price index number was a bit of a setback. But, markets managed to move on from the disappointing (and a tad overheated) numbers the next day. Despite this market’s resilience, several stocks seem a bit expensive for their own good.
So, it remains unseen if the markets continue trending higher or take a breather at some point. The following Dow Jones stocks stand out as potential candidates to do some profit-taking or, at the very least, some subtle trimming ahead of Easter 2024. Let’s check out three Dow that appear lofty as markets look to make a run into overbought territory.
Apple (AAPL)
It pains me to put Apple (NASDAQ:AAPL) on a list of stocks to potentially look at trimming.
But, since running out of gas after briefly touching new highs at the end of 2023, few meaningful near-term catalysts could propel it above the $200 mark. Despite the rough start to 2024 and the handful of downgrades, AAPL is still off just 8% from its peak. Further, shares are still up nearly 20% over the past year. That’s a pretty good run for a firm that’s seen growth seriously stall in recent quarters.
Additionally, investors are longing for some sort of AI announcement, one that could continue to prove elusive in 2024. Further, Apple is trying to distance itself from controversies surrounding the most advanced generative AI products stealing headlines today. Undoubtedly, it’s hard to pull the curtain on even your most advanced generative AI offering. The Times recently filed suit against ChatGPT- and Sora-maker OpenAI and Microsoft (NASDAQ:MSFT) over the use of its articles to train AI platforms.
Though I think Apple will eventually have something big to deliver regarding AI, patience will be key. Why rush into a new technology before the full extent of the risks can be accessed?
Indeed, Apple may play it cautiously on AI as other firms, like ChatGPT, look to take the risks that often accompany the awes of new technologies.
Though I still love Apple (and am hanging onto shares), I’d rather wait for a bigger pullback before I’d consider buying more. For now, it stands out as more of a sell candidate for those looking to raise cash to put to work on timelier opportunities.
Caterpillar (CAT)
Caterpillar (NYSE:CAT) hit new all-time highs of over $320 per share recently, thanks in part to an incredible quarterly earnings result. How good were those earnings?
The firm achieved its “best year in our 98-year history,” according to CEO Jim Umpleby. That’s a quarter deserving of a round of applause. However, expectations have been raised. And given the cyclical nature of heavy-duty construction equipment, some may worry about a bust potentially lying on the other side of this boom.
Timing a bust can be tricky, but I’m no fan of the risk/reward as the economy’s resilience is tested in 2024. For now, the company expects similar sales in the new year. But if the firm comes up short, there could be considerable downside.
Though I don’t doubt Caterpillar’s ability to keep delivering, I think there’s too much optimism priced in right here. At 16.1 times trailing P/E, the industrial giant isn’t all too expensive. However, I’d be more comfortable getting in at much lower levels, perhaps closer to the $250 range.
The Travellers Companies (TRV)
Finally, we have The Travellers Companies (NYSE:TRV). It also recently made a new all-time high on the back of an exceptional round of quarterly earnings. The company was firing on all cylinders from across the board, with core earnings and earnings per share numbers hitting quarterly records.
CEO Alan Schnitzer views the AI opportunity as a profound way for the technology to give The Travelers Companies a jolt. The insurance company isn’t shying away from new trends in the AI scene. In fact, the firm has its own team seeking to harness the full power of AI. Though it’s unclear how AI tech can help improve underwriting, efficiencies, and other metrics, the firm’s willingness to invest in the technology is enough to deserve a premium to the peer group.
However, at fresh new highs, with a P/E multiple (currently at 17.0 times trailing), that’s higher than the five-year historical average (of 13.9 times). I’d be more inclined to wait for shares to pull back a bit. Perhaps a better entry point will be in the cards over the next few months.
On the date of publication, Joey Frenette held shares of Apple. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
