Recession fears gripped the markets over the past week, sending tech and AI stocks into a tailspin. Even with stocks breathing a sigh of relief on Thursday over the latest round of jobs data, JPMorgan (NYSE:JPM) CEO Jamie Dimon still believes a recession could be in the cards. Investors should consider identifying overhyped stocks to sell, especially as Dimon pins an economic “soft landing” (or a mild economic downturn) as having a 35-40% chance of happening.
Undoubtedly, that’s a pretty high chance of recession. With the Oracle of Omaha taking profits, it’s wise to strengthen your portfolio ahead of the fourth quarter.
Though Dimon’s tone is cautious, it’s important to note that the future is uncertain for everyone. A less-than-50% chance of a recession shouldn’t have you hitting the panic button, especially if such a recession ends up being a rather soft jab to the chin. In any case, here are three overhyped stocks to sell if you seek profit-taking ideas.
T-Mobile (TMUS)
T-Mobile (NASDAQ:TMUS) stock is continuing to surge to new highs on the back of yet another impressive quarterly result. Undoubtedly, T-Mobile’s secret to success is its operational excellence, which has helped keep it miles ahead of its telecom rivals.
Though T-Mobile is likely to stay top dog with its incredible 5G network that blows away the competition, the company’s ailing telecom peers are doing their best to turn the tides. Lower interest rates, aggressive turnaround plans, and bigger promos may help them put up more of a fight with T-Mobile.
Additionally, there may be too much AI phone hype baked in. Of course, AI phones could be hot sellers and keep the melt-up going strong for TMUS stock. But what happens if the first wave of them isn’t a “must-have”?
Either way, the 24.3 times trailing price-to-earnings multiple is rich versus the peer group, especially given a continuation of its rally may hinge on the success of new AI phone launches.
Costco (COST)
Big-box retail firm Costco (NASDAQ:COST) is bouncing back after narrowly avoiding a fall into correction territory. At the time of writing, COST stock is down close to 5% at just shy of $840 per share.
While the company can’t seem to do anything wrong of late as it continues putting up impressive numbers amid macro headwinds and inflation, I find the stock to be incredibly expensive at 52.1 times trailing P/E.
Sure, Costco has many levers it can pull to jolt growth and keep the rally alive, but with expectations steadily ascending, perhaps those looking to take profits may wish to do so in COST stock.
Looking ahead, the company seeks to get tougher on membership “freeloaders” by checking Costco cards at the entrance, a move that should help curtail membership sharing. Indeed, the member-sharing crackdown move seems to channel Netflix (NASDAQ:NFLX). However, whether it will work out as well for Costco as it did for the video streamer remains to be seen.
Chipotle Mexican Grill (CMG)
Chipotle Mexican Grill (NYSE:CMG) stock is down around 20% from its all-time high as concerns about portion skimping and the extended valuation weighed. Though Chipotle seems to have found the holy grail of resilient growth by focusing on value and quality, the stock remains incredibly expensive after entering its bear market.
At 53.25 times trailing P/E, there’s still a lot of expectation baked in. And it could make it tougher for the burrito giant to pass the bar in future quarters, especially should some regular customers begin to grow tired of the same burritos and bowls.
Additionally, other underperforming fast-food firms are trying to win back customers by engaging in what some refer to as the “value menu wars.” Lower prices at rivals could spell trouble for Chipotle, especially given it’s one of the pricier quick lunch options out there. The food may be quite pricy, but what’s even pricier is the stock.
On the date of publication, Joey Frenette did not hold (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.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.