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Is a stock market correction on the way?
Famed investor Jim Rogers has been selling U.S. holdings in favor of better opportunities in China and Russia. Billionaire David Einhorn believes we’re experiencing the second tech bubble in 15 years. The sentiment doesn’t appear to be in the market’s favor.
The market is facing a number of headwinds. First is the potential slowdown in Fed stimulus. The Fed’s tapering, in which its bond repurchases could end by yearend, will lead to an eventual rate hike.
Once investors realize the Fed-induced market rally is slowing, the concerns over inflation will also become a larger focus. Couple that with a slowing in the housing boom and the market could be set for a correction.
When will the stock market correction come? And how bad will it be? Both are great questions.
Here are three stocks that are worth selling before the market corrects. These issues have been lifted higher by the market’s appetite for riskier stocks. However, as investors become more wary of the stock market during a stock market correction, these stocks will be the first ones to get the boot from investors’ portfolios.
No. 1: Intel (NASDAQ: INTC)
Intel is the world’s largest semiconductor maker; its microprocessors and motherboards are widely used in computers and servers. Shares are already up nearly 20% year to date. For all of 2013, Intel’s stock was only up 28%. The irrational exuberance in the stock price appears to be overdone.
The company’s stock soared to close to $30 back in 2012, before tumbling to below $20 in less than six months. What’s different this time? Intel is still trading above its five-year average P/E ratio. Also, despite the fact that Intel’s P/E ratio is well below some of its major semiconductor peers, when you factor in Wall Street’s expectations for earnings growth over the next five years, shares don’t appear that enticing. Intel’s P/E to growth rate (PEG) ratio is almost 2.5, which is well in line with the industry and even above competitors.
The market has taken solace in the fact that the decline in PC sales might be slowing. That’s driven Intel higher. However, Intel’s strongest position is in the in the desktop and notebook markets, and that part of the market should continue to be cannibalized by ultra-mobile PCs.
On the server side of the market, Intel’s competition is increasing as more companies look to get into this higher-margin business. The move toward lightweight mobile devices is also decreasing the need for processing power, which is one of Intel’s greatest strengths.
No. 2: First Solar (NASDAQ: FSLR)
Shares of First Solar are up 27% year to date and nearly 50% over the last year. The stock was up near 20% in a single day earlier this year after boosting fiscal 2014 to 2016 earnings guidance. While the boost in earnings expectations is a big positive, a lot can change in just a short period of time.
First Solar trades at just under $70 a share, but traded as high as $155 back in 2011. Before that, it was trading at over $300 in 2008. But the maker and seller of solar power modules still faces intense competition.
Most notable is the Chinese market, where low-cost solar manufacturers can offer products at much cheaper prices. The top players in China are also much better positioned than First Solar to capitalize on emerging renewable markets, such as India and China, given their proximity and low-cost leadership. Wall Street expects First Solar’s earnings growth over the next five years to be flat, while the industry is expected to grow at an annualized 11%.
No. 3: BlackBerry (NASDAQ: BBRY)
BlackBerry is up the most of the three stocks; it has gained nearly 43% year to date. The company makes and sells mobile hardware and software. The market has taken any good news as great news for BlackBerry. Shares have nearly doubled from their 52-week low at the end of 2013. But the company still faces a number of headwinds and competitive pressures.
BlackBerry has gotten pushed to the wayside by the likes of Android and Apple. Last quarter, BlackBerry sold 3.4 million smartphones. That was down over 70% year over year. Meanwhile, Apple sold 50 million smartphones and Samsung sold 83 million.
BlackBerry’s hardware has fallen out of favor and its software remains uncompetitive when compared to the app-friendliness of Apple’s iOS and Google’s Android. Its mobile operating system market share is an ultra-low 0.6% on a global basis. In the same quarter last year, it had a market share of 3.2%.
BlackBerry’s latest operating system (BB10) smartphones didn’t prove to be the “hit” that the company thought. Demand has fallen short of expectations. It’s now trying to pivot away from expensive smartphones and strong presence amongst corporations to become a caterer to low-end markets. This is a big move for BlackBerry, and one that appears to be a risky. Its top partner for this, Foxconn, doesn’t have the greatest track record when it comes to marketing and use of labor.
With the market at all-time highs, these three stocks appear to have been carried higher on the market’s irrational exuberance. The positive (but temporary) sentiment surrounding these stocks will quickly fade when the market corrects, so sell these names before that happens.
A crushing blow to Honda and Toyota
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