8 Stocks To Sell In May And Go Away

The S&P 500 index rose a stunning 25% from November to April.
Year-to-date market return is 9% (as of 12 April), even though the compound annual growth rate over the past 5 years was 13.7%. When should investors sell stocks saving their profits?
We have already mentioned the alarming increase in gold prices and a possible negative market reaction to the Federal Reserve maintaining the current level of interest rates. Let us pay attention to one more point: the dividend yield of the S&P 500 is again approaching historical minimums. The collapse of 2008, the Covid fall of 2020, and even the 2023 drawdown began under similar conditions.

But let’s look at our calculations. What is the share of undervalued companies in the top 10 by market cap? Let’s use Eyestock Advanced Stock Screener to find out. We get the result by selecting Nasdaq and NYSE exchanges (or using the «USA» preset) and sorting by market cap.

We see that out of the top ten positions, only AMZN and BRK are undervalued, while MSFT stock, META stock, and even LLY stock are overvalued. The remaining five shares, although they have the status of fair valued by Eyestock methodology, are traded above their median fair market valuations by an average of 14%.

Today we will be bold and tell you about 6 stocks that, regardless of whether the index declines in May or continues to rise, seem to us to be overheated and possible to sell right now. It’s not just that the phrase «sell in May and go away» appeared.

How analyze the value of a company to make investment decisions?

Our valuation process emphasizes the use of historical Price-to-Earnings (P/E) values. By evaluating historical data of P/E ratios, we place a company’s current earnings per share within a broader historical context. This approach allows us to identify discrepancies between a stock’s market price and its intrinsic value, informed by its historical performance and valuation trends. Learn more in our Methodology section.

Southern Copper Corp (SCCO)

Southern Copper is an American company headquartered in Arizona, which is engaged in the development, production and exploration of copper, molybdenum, zinc and silver primarily in Mexico and Peru. At the end of 2023, the company’s revenue amounted to $9.9B, which is 1.5% lower than the previous year. Net profit fell by 8%. All this was reflected in the final Eyestock rating, which decreased from 103 points to 89. However, SCCO price as of April 12 is $115.25 and this is a 35% increase from the beginning of the year. This discrepancy between the financial performance and market valuation has led to the fact that SCCO stocks are overvalued by Eyestock methodology because they are trading 13% higher than their maximum value.

KLA Corp (KLAC)

A participant of our Semiconductors equipment TOP shares repeats the history of SCCO like two peas in a pod. The deterioration of financial performance is accompanied by an accelerated growth of prices, which leads us to the conclusion that KLAC stock is overvalued relative to its maximum price-to-earnings ratio (29.5) by 15%.

Lam Research Corp (LRCX)

Lam Research is a very effective firm in the semiconductor industry, which has provided investors with excellent opportunities to increase capital. Just think about it, LRCX stocks have grown 6 times over the past 5 years! We, in our personal portfolios, had the pleasure of doubling the value of our positions while holding them in 2019-2021. But now the price-to-earnings is 38! Yes, this is less than the same one for AMD, INTC MPWR or NVDA, but this company has never been valued so high, with a 5-year median P/E of 18.5. As a result, LRCX is the most overvalued stock on our list today, trading 50% above its average and 18% above its high estimate.

Three more overvalued stocks you might want to consider selling

While Cintas Corp (CTAS stock on Nasdaq) and Cadence Design Systems Inc (CDNS stock on Nasdaq) have high Eyestock ratings with outstanding financial results across the board, Abbvie Inc (ABBV) is a poor performer in the healthcare sector in our opinion. By the way, we recently talked about top ideas in this direction. But what all three stocks have in common is that they are trading 5-7% above their all-time P/E highs, which gives us reason to include them in the overvalued list.

And finally, we will show in more detail our analysis of two more fairly popular equities. But we would like to clarify that stock trades should be done only according to your investment strategy. We are only giving you an additional point of support in the form of our view of market trends.

Microsoft (MSFT)

Microsoft is a great performer, but we’ve already mentioned a couple of times that in the last 5 years, it has never touched the red line on our charts. Let us recall that it corresponds to the maximum historical ratio of the company’s capitalization and its net profit. MSFT stock price is $421.9 as of 12 Apr 2024 and it is 6% higher than its maximum value

Meta Platforms (META)

The average return of META stock is 16.3% (geometric mean over 5 years). And by the beginning of the second quarter of 2024, the stock had already grown by 47%. In itself, this does not mean an imminent collapse in quotes, but the fact that the price has reached the level of $510, which is important for assessing the value of the company according to our methodology, gives shareholders a reason to think about whether they should at least reduce their positions.

Want more insights like this? Just use Eyestock Advanced Screener, set notifications for the events you need, and don’t miss significant changes!
Invest Wisely, Accelerate Growth