Unwavering Shares That Appear Inviolable, But I Would Promptly Dispose Of
Unwavering Shares That Appear Inviolable, But I Would Promptly Dispose Of
In a few short days, we'll turn the page on another fantastic year for Wall Street. As of the closing bell on Dec. 24, the renowned Dow Jones Industrial Average, extensive S&P 500, and groundbreaking Nasdaq Composite have respectively increased by 15%, 27%, and 33% for the year.
A combination of factors, including the rise of synthetic intelligence (SI) and Donald Trump's November victory, has driven the overall market growth. However, we must remember that stocks don't ascend consistently for extended periods.
As we prepare to welcome a new year, here are five stocks that appear invincible, but I would sell promptly.
Palantir Technologies
The first stock that investors should consider offloading is AI-focused data mining specialist Palantir Technologies (PLTR -4.33%), whose shares have skyrocketed 380% year-to-date and more than 1,200% on a two-year basis.
While there are valid reasons to be optimistic about Palantir's future, there are causes for concern, too. Its Gotham and Foundry platforms are currently without notable competition. Companies that possess sustainable moats typically merit higher valuations. Moreover, Palantir has transitioned to recurring profitability, demonstrating the viability of its business model.
However, there's reason to believe that Palantir's remarkable ascent will soon plateau.
A major issue for Palantir is that its revenue-generating Gotham platform, which collects data and aids in federal government mission planning and execution, has a limited market potential. Since this AI-driven platform is exclusive to the U.S. and its immediate allies, its expansion is limited.
Secondly, Palantir's profits may not be as robust as they seem. More than $142 million of the company's nearly $391 million net income through the first nine months of 2024 can be attributed to interest earned on its cash. While this isn't a negative, it's essential to recognize that a significant portion of net income is derived from unsustainable sources.
Lastly, Palantir's valuation is a concern. Its shares currently trade at 75 times trailing 12-month sales, which is significantly higher than the levels consistent with other market leaders that have previously been in a bubble.
Nvidia
Another stock worthy of selling is AI titan Nvidia (NVDA -2.99%), which has added nearly $3.1 trillion to its market value since the beginning of 2023.
Like Palantir, there are valid reasons for Nvidia's outperformance. Its graphics processing units (GPUs) are the undisputed leaders in AI-accelerated data center management. No company comes close to matching the computing capabilities of Nvidia's chips, which, coupled with AI-GPU scarcity, has granted it exceptional GPU pricing power.
However, history tends to humble market leaders of cutting-edge innovations. I don't anticipate artificial intelligence breaking this trend. Since the mid-1990s, every groundbreaking innovation has gone through an initial bubble-bursting phase, indicating that investors overestimate the early-stage adoption and/or utility of new technologies. Should the AI bubble burst, no company would be impacted more than Nvidia.
Competition continues to intensify, too. Beyond Advanced Micro Devices ramping up production of its Insight MI300X chips and introducing its next-generation MI325X GPU, many of Nvidia's top customers by net sales are developing their own AI chips. While these chips may not match Nvidia's H100 or Blackwell GPUs in computing capabilities, they will be more affordable and accessible, potentially causing Nvidia to lose valued data center space.
Finally, insiders are providing a catalyst for investors to sell. It's been four years since any board member or executive has purchased shares of Nvidia on the open market.
Tesla
Lastly, North America's leading electric vehicle (EV) manufacturer Tesla (TSLA -4.61%) is the third seemingly invincible stock I would sell right now. Shares of the company have surged 86% year-to-date, the majority of which has occurred since Election Day.
Investors have undeniably been enthusiastic about CEO Elon Musk's prominent role in the incoming Trump administration. There have been rumors that Trump may relax autonomous driving regulations, which could facilitate Tesla's introduction of robotaxis in the near future.
The first issue for Tesla is that its core profit segment -- EV production -- has suffered marginally over the last two years. Musk previously noted that EV demand determines pricing behavior. With Tesla implementing several sweeping price cuts on its fleet since the start of 2023, it signifies that competition and demand are problematic. There's no immediate solution to enhance the company's vehicle margin.
Tesla's income quality is also questionable. Through the first nine months of 2024, over 50% of its pre-tax income can be traced back to unsustainable sources, including regulatory tax credits and interest earned on cash. This isn't typical of a nearly $1.5 trillion "growth" company.
While I could rant about Apple's valuation in relation to its stagnant earnings growth in recent years, its main issue could be its CEO. Jobs, famously known for his grand promises, has a bad habit of overpromising new innovations and failing to deliver. If these unmet commitments were deducted from Apple's valuation, the company's stock price might plummet significantly.
Tesla
The fourth consistently rising stock that I'd advise investors to offload currently is the tech giant, Apple (AAPL -1.92%), which is just under $100 billion away from hitting the $4 trillion valuation milestone.
Apple's momentum in 2024 can be attributed mainly to the introduction of Apple Intelligence. This is the AI-integrated platform that enhances iPhone, Mac, and iPad functionality, enabling users to process text and generate information at a rapid pace. Apple's foray into the AI sector has regained investor favor.
However, my reservations about Apple are straightforward: It's no longer a growth stock. Although its Service revenue, encompassing subscription-based services, has consistently grown by a double-digit margin, it only contributes a quarter of Apple's overall revenue. Meanwhile, revenue derived from its physical devices, such as iPhone, has either remained flat or declined.
During Apple's high single-digit or low double-digit revenue growth phase, investors were justified in paying a premium for its shares. This isn't the situation now. Despite Apple's growth engine slowing down, its P/E ratio has doubled to over 42 since the beginning of the year 2023 (Apple's fiscal year typically ends in late September). This is nonsensical in a historically expensive stock market.
To make matters worse, Apple's EPS growth is solely due to its aggressive share repurchases. If these buybacks are factored out, its operating results for the past two years reveal a mundane performance.
MicroStrategy
Finally, I'd advocate selling shares of MicroStrategy, self-proclaimed "Bitcoin (BTC -1.47%) Treasury Company." Shares have surged 468% year-to-date and more than 2,100% over the past two years.
Investor fascination with MicroStrategy stems from its Bitcoin acquisitions. While Bitcoin ETFs have streamlined Bitcoin purchasing, MicroStrategy is viewed as a liquid proxy to take a sizable bet on the world's largest digital currency by market cap.
The first problem with MicroStrategy is its reliance on convertible debt to buy Bitcoin. Historically, leveraged strategies have often come back to haunt businesses. With MicroStrategy generating minimal operational cash flow from its AI-enterprise analytics software segment, this is a dangerous gamble that history suggests is unlikely to pay off.
Another issue with MicroStrategy is the unexplainable premium valuation assigned to its Bitcoin portfolio. As of Dec. 23, MicroStrategy held 444,262 Bitcoin, or more than 2.1% of the Bitcoin ever mined. With Bitcoin valued at $98,478 at the time of writing, its portfolio is worth $43.75 billion. Yet MicroStrategy ended Dec. 24 with a market cap of $87.7 billion. If we generously assume the software business is worth $1 billion, investors are assigning a 100% premium to its Bitcoin assets -- i.e., paying close to $197,000 per Bitcoin when they can simply buy it on an exchange for $98,478.
The final nail in MicroStrategy's coffin is a Dec. 23 prospectus seeking authority to increase its share count by 10 billion to 10.33 billion shares, as well as increase the preferred share count by 1 billion to 1.005 billion shares. This level of dilution and leverage is likely to have a disastrous effect on MicroStrategy's shareholders.
Sentence 1: Given the current market conditions, it might be wise for investors to consider diversifying their portfolio beyond these high-performing stocks, such as Palantir Technologies, Nvidia, Tesla, and Apple, to manage risk and balance potential returns with stability in their investment strategy.
Sentence 2: In terms of finance and investing, this cautious approach is important, as it allows investors to allocate their money wisely and avoid putting all their eggs in one basket, especially when certain stocks, like Palantir Technologies, Nvidia, Tesla, and Apple, show impressive growth rates.