3 bubbles that could burst in the next market crash

0
60


Last week, 860,000 Americans filed for unemployment for the first time. There are more than 12 million people out of work, and according to data from Yep, around 60% of businesses that close their doors during the coronavirus pandemic will remain closed for good. This does not paint an optimistic picture for the economy, regardless of the performance of the stock market. And when things don’t make sense in the markets, they often correct.

That’s why it’s understandable to worry about sky-high stock prices right now, as many of them could drop sharply if the market collapses again. Intuitive surgery (NASDAQ: ISRG), Beyond meat (NASDAQ: BYND), and Salesforce (NYSE: CRM) are currently three of the most expensive stocks on the markets. Here’s why you might want to consider stepping away from it.

1. Intuitive surgery

Now that the economy is no longer in a shutdown mode and hospitals are taking elective procedures, companies like Intuitive Surgical – which makes the da Vinci series of surgical systems – are doing better than they were a few years ago. some months.

On July 21, the California-based company released its second quarter results for the period ending June 30, with revenue of $ 852.1 million. This was down 22.5% from the same period last year, when its sales were $ 1.1 billion. With fewer procedures during the period, there was less demand for the company’s surgical systems. Intuitive shipped 178 da Vinci systems in the second quarter compared to 273 the previous year, a decrease of 35%. The company was, however, able to remain profitable, posting net profit of $ 68 million in Q2, down 78% from last year’s total of $ 313.5 million.

Image source: Getty Images.

Intuitive is a great long-term investment, as its innovative surgical systems will help improve the healthcare industry and increase efficiency along the way. But sadly, with the stock up 16% this year, its valuation is just too steep to make it a good buy right now. It trades at a futures price / earnings (P / E) ratio above 50 – a high premium to pay for any stock. A year ago, this multiple was less than 40.

The risk is that this very expensive health care title could collapse if the markets turn south. Not only is this an expensive buy, but if there is a crash in the markets, it likely means there has been a second wave of COVID-19 that has panicked investors. And if that happens, there is a risk of more closures and the possibility that hospitals will postpone elective procedures again.

If you want to buy Intuitive for the long term, you might be better off waiting for its stock price to drop, which seems likely over the next 12 months.

2. Beyond meat

Another stock that can be risky right now is the plant-based food producer Beyond Meat. On the one hand, it’s incredibly volatile. Although it is currently trading at around $ 150, when the markets collapsed in March, Beyond Meat’s share price fell below $ 50 at one point.

Unlike Intuitive, Beyond Meat always generates strong sales figures, even when it closes. On August 4, the company released its second quarter results for the period ended June 27, and net sales of $ 113.3 million increased 69% over the prior year period . Its sales in the United States more than doubled to $ 96.5 million, which more than offset declines in its international segment. However, that didn’t help much in terms of profitability, as Beyond Meat has historically recorded a loss of $ 10.2 million, higher than the loss of $ 9.4 million it suffered a year ago. year.

Since profits remain elusive for Beyond Meat, an examination of its multiple price / sales (P / S) will be more appropriate to assess its valuation. And here, the stock is trading at 24 times its sales – it closed 2019 at an already high P / S of around 20.

Beef patties are still over $ 1 a pound cheaper than Beyond Meat’s budget packaging, and the deeper the economy sinks into a recession, the more consumers’ wallets can force them to look for more affordable options than Beyond Meat products. That, combined with the stock’s high valuation and significant volatility this year, are just a few of the reasons you might want to rethink placing this stock in your portfolio. A crash in the markets could once again cause its share price to move.

3. Salesforce

The cloud is a popular place during the pandemic, and it is where many businesses are heading. This is one of the main reasons customer relations firm Salesforce is still doing well, driving sales growth of 29% in the second quarter. In results released on August 25 for the period ended July 31, sales of $ 5.2 billion were up from $ 4 billion in the prior year period. The company’s pre-tax profit of $ 839 million was also more than five times the $ 164 million recorded last year.

Overall, this was a record performance for Salesforce, as it was the first time the company had achieved $ 5 billion in revenue in a single quarter. And management expects those numbers to continue rising, predicting third-quarter revenue to be between $ 5.24 billion and $ 5.25 billion.

The lingering risk here is that, again, in the midst of a recession, growth may start to dry up as companies seek to cut spending. Salesforce’s marketing and sales products and services, which may not be essential when the economy isn’t growing, could be an easy target. And even without a downturn, the stock is still incredibly expensive; its forward P / E of 80 is significantly higher than the already high multiple of 50 it was trading just a few months ago.

With the stock having already risen by around 50% this year, it may be worth cashing in on those gains if Salesforce is still in your wallet.

None of these stocks are worth buying right now

Since the start of the year, these three stocks have outperformed the S&P 500:

^ SPX data by YCharts

When markets start to collapse, the natural instinct of many investors is to take money out of high-priced stocks and invest them in safer, more value-oriented investments. If you have any of these expensive stocks in your portfolio, maybe now is the time to start planning an exit strategy, as a market meltdown could take them over a cliff.



LEAVE A REPLY

Please enter your comment!
Please enter your name here