Sell These Stocks RIGHT NOW

Sell These Stocks

Market momentum is Red. We moved back to cash Friday morning, and this has been a blisteringly bad day for anyone who stuck around. The entire market now relies on what the Fed will do on Wednesday. I don’t foresee a 75-point hike, even though I highly encourage one. This Fed isn’t made for Paul Volcker moments.

Greetings from the center of the Sun. I’m down in Austin, Texas this week visiting a colleague and trying not to fry like an egg. The only thing hotter than the dry 100-degree temperature is the real estate. My Uber driver asked what I did for a living… and I stupidly answered that I’m an economist. He asked me about 75 questions about the local real estate and stock market…

I told him what I tell everyone. Austin real estate will be okay. But the stock market won’t. And there’s one key reason why… Valuation compression.

Sell These Stocks

The Nasdaq is the more technology-heavy indices. It hosts stocks like Apple (AAPL), Microsoft (MSFT), Tesla (TSLA), and Alphabet (GOOGL). Those are the household names that most investors own directly or indirectly through exchange-traded funds. But there’s a list of stocks that are extremely dangerous trading on the Nasdaq… 

I am looking at eight stocks right now that trade at OUTRAGEOUS multiples… and aren’t even profitable. 

  • Market Capitalization: Above $10 billion
  • Price-To-Sales Ratio: Above 20x
  • Operating Margin: Negative. 

The fact that these eight stocks trade at these levels – with a total lack of awareness to fundamentals is stunning. I’ll explain why that problem exists in a moment. But first, let’s look at these unprofitable, overvalued stocks. 

If you own them: Sell these stocks now. These companies are going lower. They are unprofitable. They trade at outrageous revenue multiples… and they are very liquid based on the large market capitalizations

Remember, if a stock trades at 20 times revenue, it means the following: To justify that valuation, a company must pay all of its shareholders 100% of its total revenue for 20 years. You read this right… 20 years of revenue. Not profits… 

This means no profit sharing, no money for research and development, no taxes paid (which I’m sure is illegal), and no paying for their employees. This is brutal. While I’d highly recommend that we short these stocks, understand that it will take a long time for them to really drop to rational valuations.

What’s Happening?

I went through the entire portfolio of junk stocks, and I realized something quickly. These stocks are largely owned by large institutions like The Vanguard Group. Vanguard is the largest issuer of mutual funds in the world and the second-largest issuer of exchange-traded-funds.

  • Vanguard owns 5.8% of Crowdstrike… (largest shareholder)
  • Vanguard owns 4.7% of Snowflake… (third largest shareholder)
  • Vanguard owns 2.27% of Lucid Group (largest shareholder)
  • Vanguard owns 1.06% of Rivian (fourth largest shareholder). 
  • Vanguard owns 5.28% of Zscaler (largest shareholder). 
  • Vanguard owns 8.11% of Cloudflare (third largest shareholder). 
  • Vanguard owns 8.22% of Bill.com (largest shareholder. 

Vanguard owns the bulk of these shares because Wall Street effectively forced them to purchase the stock and add it to index funds.

The company can’t just dump all seven of these stocks right now. If they did so, the stocks would absolutely crash. So, the likely outcome is a structured selloff into any strength in this market. Vanguard isn’t the only company behind these stocks.

Other common owners include BlackRock, Morgan Stanley, Soros Management, Fidelity, and Pacific Investment Management. These companies will continue to sell these stocks, which is another reason why there Nasdaq has additional downside. These stocks aren’t coming back. Keep them out of your portfolio.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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