On Wall Street, you need any edge you can get, especially when it comes to deciphering which stocks to sell (and when). Some may turn to advanced solutions such as high-frequency trading algorithms. Others turn to oddball ideas, such as deciphering magazine covers.
It’s not as irrational as it may initially sound. For example, sports fans know about the Madden video game cover curse. Basically, NFL stars that are celebrated on the cover of the popular gaming title encounter an injury or some other misfortune. Apparently, it’s the same situation on the Street.
Basically, some investors turn to magazine covers as contrarian indicators. If mainstream media outlets are bearish, that might be the time to buy. On the other hand, if they’re super bullish, watch out. We could be dealing with stocks to sell.
Look, I’m not going down the conspiratorial route. However, if you feel something just isn’t right – you know, the old Joseph Kennedy quote – then it might be time to reconsider the mainstream narrative. Here are possible ideas for stocks to sell.
Nvidia (NVDA)
Now, before you have the urge to send a nasty gram, you knew this was coming, right? I like Nvidia (NASDAQ:NVDA) just like everyone else. But at some point, you gotta figure that the company will eventually disappoint. Of course, it doesn’t seem that way because of artificial intelligence and all that sweet jazz. But come on – nothing goes up indefinitely.
Sure, NVDA stock is off to a screaming start this year, gaining over 82%. However, let’s also consider the earnings performances. In the fiscal first quarter of last year, Nvidia posted earnings per share of 98 cents, beating out the consensus target of 83 cents. In Q2, it posted $2.70, beating the consensus view of $2.09. I could keep going through Q4.
But consider the positive earnings surprise from Q2 onward: 29.2%, 19.3%, 11.4%. My estimation is that at some point, there will be a disappointment.
Plus, the multiples are wild. Forward earnings of 35.71X (some sources say 42.2X) and trailing-year sales of nearly 36X don’t help the cause. It may be one of the stocks to sell if this magazine cover curse proves accurate.
Super Micro Computer (SMCI)
I’m not going to make many friends by even suggesting that Super Micro Computer (NASDAQ:SMCI) might be one of the stocks to sell. Hopefully, the context of the magazine cover curse will help mitigate some of the emotions surrounding SMCI. Anyways, its rise so far is perfectly explainable due to Super Micro’s specialty in high-performance server solutions. Basically, AI applications consume gargantuan bandwidth.
To be fair, the tech giant is putting up some impressive financial figures. In Q1 of last year, it did miss bottom-line estimates slightly. However, between Q2 through Q4, the average positive earnings surprise came out to 14.7%. That has played a significant role in pushing SMCI stock to a return of over 274% since the beginning of this year.
Can it last, though? Analysts are looking for sales of $14.54 billion by the end of this fiscal year. That seems ambitious given that it’s 104.1% up from last year’s print of $7.12 billion. Also, last week, SMCI suffered a near 3% loss.
I’m not sure if that’s a warning sign or not. But if you’re superstitious, SMCI may be one of the stocks to sell.
Tesla (TSLA)
Electric vehicle manufacturer Tesla (NASDAQ:TSLA) is a tricky case for stocks to sell because many people anticipate TSLA to perform poorly. Since the start of the year, the security suffered a loss of more than 34%. As it turns out, management may be regretting the sector price war bit. Yes, the move hurt the competition but it also negatively impacted TSLA stock.
Still, there is an argument to be made that the EV manufacturer has fallen so far that it may be worth loading the boat. It’s not an irrational idea. However, the bigger concern centers on the broader consumer economy. With households suffering years of high inflation and high borrowing costs, they’re spent (literally). I just don’t think adding an EV is part of the picture.
That’s why other analysts believe shares have further to fall. It’s hard not to lend credence to the bearish argument. After an earnings beat in Q2 of last year, Q3 and Q4 saw an average negative earnings surprise of 6.2%.
Experts do expect sales to hit $108.5 billion this fiscal year. Given the troubles in the ecosystem, that might be a stretch. We’ll see.
AudioEye (AEYE)
Founded in 2005, AudioEye (NASDAQ:AEYE) provides patented, internet content publication, distribution software, and related services to internet and other media to people regardless of their network connection, device, location or disabilities. Further, its software and services enable conversion of digital content into accessible formats and allows for real time distribution to end users on any internet-connected device.
I’m all for it. However, if we’re talking about stocks to sell based on magazine cover superstitions, AEYE may be suspect. Since the start of the year, shares have almost doubled in value. And let’s not forget that since its public market debut, AEYE has lost about 69% of equity value. I’m not saying it’s not relevant or important. It is. Still, tech rotations can be brutal.
I think we’ll find out the risk appetite for AudioEye later this year. In Q3 and Q4 of last year, the company’s positive earnings surprise came out to an impressive 45%. The thing is, investors will have high expectations for future earnings.
Considering that AudioEye carries a market capitalization of only $102.3 million, you need to be super careful here.
MakeMyTrip (MMYT)
An Indian online travel company, MakeMyTrip (NASDAQ:MMYT) sells travel products and solutions in its home nation. As well, it offers them to clients in the U.S., Singapore, Malaysia, Thailand, the United Arab Emirates, Peru, Colombia, Vietnam, and Indonesia. Per its public profile, MakeMyTrip operates through three segments: Air Ticketing, Hotels and Packages, and Bus Ticketing.
From my research this year, it seems travel experts still believe that revenge travel – or the “residue” of the phenomenon – will continue to influence consumers in 2024 and perhaps beyond. However, if the Madden curse applies to the equities market, MMYT could be one of the stocks to sell. Let’s face reality here. If an economic downcycle materializes, discretionary purchases will be axed first.
There may have been a clue that something isn’t quite right. In Q3 2023, MakeMyTrip delivered EPS of 25 cents. That blew past the consensus estimate of 11 cents or a 127.3% earnings surprise. Obviously, that’s unbelievably impressive. However, in Q4, the positive surprise was “only” 45.8%. It was still impressive but the expectations have been heightened.
With a trailing-year earnings multiple of 139X, MMYT is suspect.
Krispy Kreme (DNUT)
A multinational doughnut company and coffeehouse chain, Krispy Kreme (NASDAQ:DNUT) is a beloved brand. Further, if the workplace normalizes, an argument could be made that DNUT could move higher. Yes, it’s down more than 19%. But imagine that the lion’s share of companies decided to recall their workers back to the office: this red print could turn black in a hurry.
So, in one sense, DNUT might not be one of the stocks to sell. Yes, in Q3, the company posted EPS of 3 cents, below the consensus view of 6 cents. And in Q4, it posted per-share profits of 9 cents. That also missed the target of 12 cents. For 2024, analysts believe sales will reach $1.79 billion. Last year, the print was $1.69 billion.
However, if the magazine curse impacts the broader economy, companies might not recall their workers; no, they’ll probably straight pink slip them. If that were to occur, that would take a significant bite out of DNUT stock.
If you’re superstitious, you might want to be cautious with Krispy Kreme. If anything, abstinence would be good for your waistline.
Zoom Video Communications (ZM)
Headquartered in San Jose, California, Zoom Video Communications (NASDAQ:ZM) provides videotelephony and online chat services through a cloud-based peer-to-peer software platform. Of course, Zoom was one of the pandemic winners. It’s no exaggeration to say the company helped keep large segments of the economy afloat during the Covid-19 crisis. However, the post-pandemic ecosystem presents huge challenges.
Since the start of the year, ZM stock incurred a loss of 5%. In the past year, it’s down almost 7%. The thing is, at the peak of its power, shares were trading hands at well over $500. Now, they’re down below $70. To be fair, the company isn’t taking the situation lying down. On average, the tech firm’s positive earnings surprise averaged 21.35% last year.
Here’s the thing, though. For the current fiscal year, analysts only see sales reaching $4.62 billion, a modest 2% increase from last year. And in the following fiscal year, they believe sales will move to $4.8 billion.
Frankly, even that modest forecast is questionable if the magazine cover curse bites the economy. At that point, there would be little need for Zoom calls. Depending on how this all shakes out, ZM could be one of the stocks to sell.
On the date of publication, Josh Enomoto did not have (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.