Sell in May and Go Away? 3 Overvalued Stocks to Dump Now
As we zoom right past the midpoint of April, the “sell and May and go away” phrase will hit the headlines again, as it typically does almost every year, regardless of the circumstances. Indeed, there is no shortage of things to be uneasy about this May.
The broader stock market seems to have been running on empty since the second quarter began. And with interest rate cuts that may be delayed (perhaps into 2025?) at the hands of inflation, May 2024 certainly seems like an opportune time for investors to take some profit off the table.
Undoubtedly, taking a bit of profit off the table of some seemingly frothy winners can never hurt unless we’re talking about ditching the class of winning stocks that have continued to win in recent years. Of such names, Nvidia (NASDAQ:NVDA) immediately comes to mind as one of those winners that sellers may have gotten completely wrong in recent years.
In any case, here are three overvalued stocks to sell as May rolls around.
Lululemon (LULU)
First, we have fallen athleisure firm Lululemon (NASDAQ:LULU), which has added to its losses since reporting some pretty dismal quarterly earnings results a few weeks ago. Today, the stock is around 33% from its January all-time high. Back then, it seemed like the sky was the limit as the firm sought to expand internationally while continuing to command premium prices in a rather mixed-to-muted consumer climate.
Undoubtedly, Lululemon has been the hot growth play in apparel in recent years. Can one dud of a quarter really change the investment thesis?
Possibly. Consumers may have felt some of the macro headwinds, but the biggest takeaway from LULU stock’s latest downfall was how quickly and unpredictably fashion trends can shift in the near term.
The big question remains whether trends will shift back in Lululemon’s favor in a timely manner. It will certainly be tough for Lululemon to bounce back down the stretch, even if it boasts one of the most robust brands in apparel.
Even if there’s a turning of the tides on the horizon, I’m not sure it’ll arrive this year. Not while competition in yoga kicks things up a notch, others ditch athleisure for other wear, like denim.
The lower guidance may be baked in here at $344 and change, but the 28.3 times trailing price-to-earnings (P/E) multiple remains still too lofty for me until the firm can deliver a big growth surprise.
Autodesk (ADSK)
Autodesk (NASDAQ:ADSK) is a computer-aided design (CAD) software developer who’s ripe to cash in on the potential of generative artificial intelligence (AI). Undoubtedly, CAD tools require quite a bit of training. With an AI copilot, though, professional users can allocate more time to design and less time learning the ropes. The AI story seems incredibly sound, but the stock has struggled to sustain any traction in recent years.
The latest setback struck Wednesday, with shares recently nosediving nearly 6% in a day following an announcement that the firm will delay releasing its annual report due to an accounting probe.
Only time will tell what the extent of the accounting situation is. Regardless, one can’t help but feel a great sense of uncertainty with the name right now. Until the air clears on the matter, I’m in no rush to buy the stock, not while it’s trading for 51.1 times trailing P/E, a multiple I find quite rich.
Adobe (ADBE)
Speaking of companies with much to gain from generative AI tools, we have Adobe (NASDAQ:ADBE). I won’t be the first to admit that Photoshop and Illustrator can be rather challenging to master. As the company invests a great deal in generative AI, we may all be Photoshop wizards without years of expertise. As exciting as Adobe’s AI-powered future stands, the stock has not been off to the races; it’s been plunging.
Indeed, AI stands to make Adobe’s suite a heck of a lot better. But it also opens the door to potential industry rivals hungry to innovate in AI-powered image and video generation. I have viewed Adobe’s creative suite as having a virtually impenetrable moat for years. Now that firms are leveraging disruptive generative AI technologies, I’m no longer sure how wide that moat is anymore. And in a few years, I have no idea what’s to become of it.
The company recently released AI tools to its Premier Pro video-editing software. While these tools are worthy additions to the suite, I can’t help but wonder what Adobe’s rivals are doing and whether they can one-up Adobe in certain areas.
In any case, I’m steering clear of ADBE stock after its 25% plunge off 52-week highs. At 45.3 times trailing P/E, the stock is too expensive, in my opinion.
On the date of publication, Joey Frenette 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.
