No, you read this correctly – we’re here to discuss overvalued value stocks to sell. Seemingly a contradiction in terms, a company that becomes overvalued by nature is no longer a value play. However, the emphasis here is on enterprises that historically carried an undervalued label but no longer justify that status. Think of it this way: little kids may love their Velcro-strap shoes. But eventually, the kids start growing and the shoes become unreasonably small. So it is with top overvalued value stocks to avoid. They may have been great deals at some point. However, as investors got wind of the discount, valuations rose. Now, it may be time to cycle out of certain enterprises and into others.
And that’s the other point about selling overvalued value stocks. This isn’t about identifying short trade opportunities. Rather, we’re just redirecting our funds from a formerly viable market segment to a currently viable one. With that, here are some ideas to flag for a rebalancing.
Broadcom (AVGO)
A few days ago, semiconductor specialist Broadcom (NASDAQ:AVGO) inked a partnership expansion with Apple (NASDAQ:AAPL) to develop 5G radio frequency and wireless connectivity components. As I mentioned in covering the news, the deal helped soothe nerves for both Broadcom and its investors. Over the years, the two companies haven’t always seen eye-to-eye. As well, Apple represents 20% of Broadcom’s revenue.
However, with that development passing, AVGO might be getting a bit stretched. Technically, Broadcom remains a discount relative to forward earnings. However, in many other categories, it’s fairly valued. Also, AVGO trades at 8.81-times trailing sales. In contrast, the sector median stat sits at 2.64 times, meaning that Broadcom ranks worse than 80.94% of its peers.
Adding to skepticism, investment resource Gurufocus labels AVGO as modestly overvalued. Looking at the analyst rating, Broadcom enjoys a strong buy assessment. However, the experts’ average price target sits at $718.85, which now represents over 1% downside risk. Therefore, it may be time to consider this one of the overvalued value stocks to sell.
Radian Group (RDN)
A mortgage insurance company, Radian Group (NYSE:RDN) features a suite of mortgage, risk, real estate and title services. Interestingly, the market responded very positively to RDN. Since the beginning of this year, shares shot up over 30%. Overall, in the past 365 days, they’ve gained almost 20% of equity value. At the same time, the outperformance makes RDN one of the overvalued value stocks to sell. Taking a look at Gurufocus’ profile for Radian, you might not suspect that to be the case. After all, the company trades at a forward multiple of 8.2. In contrast, the sector median stat stands at 10.62 times. It’s also discounted against other metrics.
Still, Gurufocus also labels RDN as modestly overvalued. Right now, shares trade at 3.45 times trailing sales, which ranks worse than 88.4% of the competition. Not only that, the revenue trend appears to be deflated relative to 2020 and 2021, a not entirely unexpected circumstance. Over the last three years, revenue growth was 1.3% below zero. Thus, RDN may be one of the top overvalued value stocks to avoid.
Eli Lilly (LLY)
As one of the top pharmaceutical companies in the world, Eli Lilly (NYSE:LLY) overall represents a very solid investment. However, one could also make the argument that, from the perspective of selling overvalued value stocks, LLY might be stretching itself too thin.
To be sure, I’m not suggesting that this is an enterprise on the verge of failure. And on the positive side, Bank of America recently boosted LLY’s price target to $500 based on demand for the underlying company’s obesity drug. Still, shares may have gone up too robustly, leaving little room for upside at the moment.
For instance, it’s true that covering analysts peg LLY a consensus strong buy. However, their average price target sits at $447, implying just under 5% growth. More tellingly, practically every major metric – price-earnings (PE), forward PE, price-earnings-growth, price-to-sales, price-to-book, and so on – signal an overheated profile. Also, it’s worth pointing out that Gurufocus now labels LLY as significantly overvalued. With potentially limited upside available, it may be one of the overvalued value stocks to sell.
Walmart (WMT)
Relatively speaking, Walmart (NYSE:WMT) enjoyed a discounted profile when shares initially collapsed following the imposition of the Covid-19 pandemic. With fears rising about an economic catastrophe, many investors rushed for the exits. However, a recovery effort soon materialized. But now, WMT may be one of the overvalued value stocks to sell.
According to Gurufocus, WMT carries a fairly valued assessment. Objectively, though, the data tells a much different tale. For one thing, WMT trades at a trailing multiple of 35.13, ranked worse than 82.33% of its peers. It also trades at 23.65-times forward earnings, which ranks worse than 77.42% of the competition.
Another factor that contributes to WMT ranking among the top overvalued value stocks to avoid is that it trades at 20.47 times free cash flow. Notably, the company’s three-year FCF growth rate sits at 4.8% below zero. Turning to Wall Street, analysts do peg WMT as a consensus strong buy. And their average price target lands at $165.64, implying over 13% upside potential. Still, in the trailing month, WMT has been volatile as consumers reduced their spending on nonessential items.
FactSet Research (FDS)
In hindsight, acquiring shares of FactSet Research (NYSE:FDS) during the 2020 doldrums would have been a 500 IQ move. With millions being sent home to work – along with Uncle Sam providing stimulus checks – this canvas sparked unprecedented participation in the capital markets. So, at one point, FDS offered a sterling discount. Nowadays, however, that narrative may come under attack, making FDS one of the overvalued value stocks to sell.
In full disclosure, Gurufocus labels FDS as modestly undervalued. However, every other major objective comparison makes this assessment rather questionable. For instance, the market prices FDS at a trailing multiple of 33.43, ranked worse than 74.37% of its peers. In addition, shares trade at a forward multiple of 23.56, worse than 75.32% of sector players.
Also, it’s worth mentioning that FactSet trades at 7.49 times trialing sales. By itself, this ranks worse than 73.27% of industry rivals. And the three-year revenue growth rate of 8.8% is just a bit better than the sector median. Thus, FDS might be a candidate for selling overvalued value stocks.
Assurant (AIZ)
Based in New York City, Assurant (NYSE:AIZ) is a global provider of risk management products and services. As with so many other publicly traded enterprises, Assurant tumbled sharply during the initial Covid-19 attack. However, shares quickly rebounded, rising higher as clients gravitated toward its niche-market insurance products. Unfortunately, shares have started to unravel and there could be more pain on the horizon.
Just from a practicality point of view, AIZ may be one of the overvalued value stocks to sell. To be fair, Gurufocus’ propriety assessment mechanism rates Assurant as modestly undervalued. Nevertheless, some cracks have emerged, suggesting investors may want to dig deeper.
In particular, Assurant’s net policyholder benefits and claims have started to rise conspicuously. Thus, its forward multiple of 11.06 (which isn’t that impressive from a discount angle) may be suspect. Also, AIZ trades at 6.85-times tangible book value, which is wildly overvalued. Finally, AIZ has been uncomfortably volatile recently. In the past five sessions, shares tumbled nearly 6%. Thus, it could be a candidate for top overvalued value stocks to avoid.
NCR Corp (NCR)
A tricky enterprise among overvalued value stocks to sell, NCR Corp. (NYSE:NCR) is a software, consulting and technology company providing several professional services and electronic products. Last year, the ATM and financial software vendor generated headlines when it announced intentions to split into two companies by the end of 2023.
Additionally, NCR mentioned that it remained open to selling parts of the business prior to the split. Conspicuously, in the past month, NCR stock gained over 13% of equity value. Nevertheless, the enthusiasm for the underlying company may have run its course for now. During the last five sessions, shares stumbled almost 3%.
On paper, NCR appears a sharp discount. Currently, the market prices NCR at a forward multiple of 6.83, ranked better than 96.57% of its peers. Unfortunately, as Gurufocus pointed out, it could be a value trap. Growth appears to be decelerating noticeably, which could mean that investors may end up paying a premium on shares. Given recent lackluster trading, investors might want to consider this one of the value stocks to avoid.
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.