In rough markets it’s important to keep and eye out for overbought stocks.
Finding the right timing to buy and sell stocks will always be a sought-after skill by any investor searching for that holy grail.
While I do believe that there isn’t one, I firmly believe that overbought stocks still provide signs of when there is a potential risk of an implosion of buyers or sellers.
For example, when stocks move sharply upwards, so do the chances of prices correcting, especially when they move into the overbought territory, according to the Relative Performance Index.
The Relative Performance Index is an oscillator that measures the speed and change of a stock’s price movements. Names above the 70 mark are overbought stocks because prices have moved continuously higher in the period specified in the indicator.
This tells us that investors may have entered a state of euphoria and pushed prices way above their fair value.
Understanding this nuance of the technical indicator alongside a company’s current financial standing and current events can be the difference between a profitable trade and a losing position.
Let’s look at seven overbought stocks that you should sell right now.
NextGen Healthcare, Inc. (NXGN)
NextGen Healthcare, Inc. (NASDAQ:NXGN) is a technology company offering cloud-based solutions for ambulatory healthcare in the United States.
The company’s services provide customized solutions to help manage the risk and complexity of healthcare in the United States. NXGN’s portfolio of products delivers digitization, regulatory influence, healthcare imperatives, integrated care & health equity.
The company’s services cater to various organizations, including Veterans’ Services, Dental Services, and Independent Physician Organizations.
The company’s price spiked after receiving an acquisition offer from the Private Equity firm Thoma Bravo in a definitive agreement.
This made NXGN’s price jump to oversold territory in a few days. However, part of the deal mentions they will take the company private and will no longer trade in any exchange after completion around the fourth calendar quarter of 2023.
Since the deal hasn’t closed, and the highest an investor will get is $23.95/share, now is a great time to sell.
Splunk Inc. (Splunk) SPLK
A software company best known for its enterprise software for monitoring, Splunk Inc. (NASDAQ:SPLK) offers threat detection and prediction through its licensed software solutions.
This includes security platforms like Splunk Enterprise Security, Splunk Mission Control, and Splunk Attack Analyzer. Observability Platforms include Splunk Obersovability Cloud and Splunk Information Technology Service Intelligence.
SPLK also offers development kits and programming interfaces that help developers and customers accommodate various use cases.
The company is currently in talks with Cisco for a potential acquisition, which is expected to close by the third quarter of 2024. This deal has pushed Splunk’s stock into overbought territory and is already near its $150.00 price range.
The company’s senior vice president, Morgan Scott, also liquidated some of his holdings Oct. 9.
While this is excellent news for the company because of its synergistic nature with Cisco, many things can happen between now and the 2024 acquisition date. Because of this and its potential risks to investors, we’re putting SPLK on our list of overbought stocks to sell.
Chico’s FAS, Inc (CHS)
Chico’s FAS, Inc. (NYSE:CHS) is a fashion company focused on women’s specialty brands for intimate and casual clothing and accessories.
Some well-known labels are Soma for its privately branded lingerie and sleepwear, White House Black Market for its accessories and everyday items, and Chico’s for its privately branded clothing focused on women.
CHS has different channels for customers to buy their products; this ranges from its catalogs, retail stores, and various websites.
Chico’s is another company on our list of companies undergoing an M&A deal. The company has entered an agreement with Private Equity Firm Sycamore Partners to acquire the company for $1 billion and take the company private.
The news propelled CHS’s price onto its 52-week high and overbought territory. The deal is expected to close in the first quarter of 2024. Under the agreement, shareholders will receive $7.60 per share for the sale.
However, prices are now trading closer to $7.50, which signifies that CHS’s overbought status may require investors to look for a potential selloff from investors.
Intercept Pharmaceuticals, Inc. (ICPT)
Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT) is a biopharmaceutical company focused on non-viral liver medication and therapeutics.
ICPT’s main marketed product is Ocalivathat, intended to help treat primary biliary cholangitis. The company currently has a phase II study of its OCA and bezafibrate and is in the early stages of its INT-787 compound in its pipeline.
ICPT has been struggling in its price performance and has been trading within the $8.82-$25.27 since last year. Now, ICPT’s stock price has almost doubled after the announcement of its acquisition by Alfasigma, one of Italy’s leading pharmaceutical companies.
To acquire all outstanding Intercept shares, Alfasigma started a cash tender offer for $19.00, an 82% premium over ICPT’s price at the time.
While prices have jumped significantly due to the announcement, investors should remember that the company traded at a fraction of its worth during its heydays at $445.00 in 2014.
Any investor who bought ICPT before the deal’s announcement may want to check if it is still worth holding this overbought stock.
Park-Ohio Holdings Corp. (PKOH)
Park-Ohio Holdings Corp. (NASDAQ:PKOH) is a supply chain management-focused company that offers industrial and machine-related services.
The company has been steadily moving up after a slow and gradual increase in its price performance. However, prices have reached overbought territory according to its latest 14-day RSI.
While this may not be a sell signal, this tells us that prices may soon start correcting because of the sharp rise in prices and PKOH trading near its resistance level.
Despite its strong price momentum, analysts have given it a “Hold” rating. Part of this may be the company’s continued net income loss. Therefore, we think investors would be better off with other stocks with potential now that PKOH is in overbought territory.
Hersha Hospitality Trust (HT)
Hersha Hospitality Trust (NYSE:HT) operates in the hospitality sector with its portfolio of high-end and luxury hotels in coastal gateways and resort markets as a REIT, or a real estate investment trust. HT’s portfolio holds approximately 25 hotels and 3,811 rooms located in various states, including California, New York, Pennsylvania, etc., just to name a few. HT’s hotels operate under brands owned by Marriott International, Inc. (Marriott) and Hilton Worldwide, Inc.
Like some companies on this list, HT is in the middle of an acquisition. KSL Capital Partners, LLC are acquiring the company via its definitive merger agreement last August 27, 2023.
KSL will acquire HT at $10.00 per share, relatively close to its current trading price. Analysts have also updated their recommendation to “Hold.” This continued development has put HT on our “to sell” list of oversold companies.
Hostess Brands, Inc. (TWNK)
Hostess Brands, Inc. (NASDAQ:TWNK) is a food processing company known for its iconic Donettes and Twinkies sweet snacks.
TWNK sells its products primarily to supermarkets, convenience stores, and national mass market retailers and outlets. Other labels sold by TWNK include Cloverhill, Big Texas, Dolly Madison, and other private-label products.
TWNK is currently in a definitive agreement with J.M. Smucker Co. for a $5.6 billion acquisition deal. In exchange for each TWNK share, investors will receive $30 and 0.03002 shares of J.M. Smucker common stock (SJM, valued at $3.38 based on its Oct. 16 closing price).
However, the alleged unfairness of the deal’s terms has caught the attention of investor rights law firms Halper Sadeh LLC and Brodsky Smith. The firms have launched separate investigations and are urging shareholders to join their proposed actions.
This puts the deal at risk of getting delayed or falling through entirely. With its overbought condition and overhanging risk, investors should consider selling TWNK stocks.
On the date of publication, Rick Orford 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
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