The case of selling against the tide
CP Rail has gained about 47% over the past 12 months. Take a step back and browse the history books, and any investor will see that this is quite a jump. Railways are typically low volatility. A 36-month beta of 0.67 confirms this. This is why a one-third rise in the share price puts CP Rail’s valuation in thin territory. A market correction could wipe out those gains, making now a good time to consider cutting back.
The Barrick Gold share price could be at risk on two fronts. First, a pullback in gold could come from a perforated “pandemic momentum” bubble. Yes, gold is classically low risk, and 2020 has seen reasons for reason mount in favor of stockpiling precious metals. But part of that growth is due to an arguably unreasonable uptrend in the markets that has separated stocks from economic reality.
The other front that could pose a problem for Barrick is the “billionaire reaction”. It has become a tendency to criticize the opinions of Warren Buffett. This year brought the revelation that the Berkshire Hathaway The leader had turned around and was buried in the gold. Barrick shares saw a rise in the news. But a reaction from Buffett could reverse some of those 67% year-over-year gains.
Another sale of tech stocks?
Then we come to Shopify, the great Canadian success story. Shopify is ripe to pluck at its current valuation, operating on the fumes of this year’s devastating economic shutdown. While the pandemic appears far from over, the fact that Shopify’s fortunes appear to be partially tied to its pursuit should give some pause for thought. The annoying thesis? Eat this Thanksgiving bird while it is beautiful and plump.
Indeed, a market correction could see Shopify lose some of those 227% 12-month gains. A vaccine breakthrough could also be. Two key Big Pharma names saw their trials halted last week. But that shouldn’t deter bullish investors on a vaccine rally from optimizing their equity portfolios for a recovery. And as we have seen previously, vaccine hopes can have a deleterious effect on technology stocks.
Indeed, the less the market expects a vaccine, the more the pro-pandemic stocks are likely to be affected by a breakthrough. This makes the current look of disappointment particularly dangerous. Shareholders should expect a curveball and consider cutting back on overpriced technologies. Gold and logistics stocks could also be at risk, with both a rally and a sell-off in the markets this fall.
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Crazy contributor Victoria Hetherington doesn’t have a position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares and recommends Berkshire Hathaway (B shares), Shopify and Shopify and recommends the following options: long January 2021 calls for $ 200 on Berkshire Hathaway (shares B), short January 2021 Put $ 200 on Berkshire Hathaway (shares B), and December 2020 $ 210 short calls on Berkshire Hathaway (B shares).