With US markets at record highs, this is not the most appropriate time to enter any large positions in the main indices. No matter how expensive stocks are, opportunities can be found, particularly among small cap stocks and technology. The majority of stocks, though, are trading at high valuations. These 3 expensive stocks have got out of line and are ripe for a quick, sharp correction.
3 Expensive stocks
Harsco Corporation ($HSC) provides industrial services and products that serve essential industries such as steel, railways and energy. The company has a market cap of $2.17 billion, is based out of Pennsylvania, and has made recent deals with China’s largest Steel producer as well as Swiss Federal Railways. So far so good.
The problem, however, is that the stock price has moved ahead of itself and is looking increasingly out of whack with reality. Remember that this is a stock with trailing twelve month earnings of -2.80 per share and just a couple of months ago was trading 27% lower than where it is now. Forward EPS, for the next year, is put at 1.43 while EPS is expected to grow at 20% over the next 5 years. So far, though, Harsco has been unable to deliver anything near that performance, indeed, EPS has declined by an average of -24.20% over the last 5 years. Moreover, comments from the company suggest organic growth on the industrial side of the business will be roughly flat.
More importantly though, the stock is extremely overbought with an RSI rating of 86.73 and has been subject to recent insider selling. That puts inside ownership at just 0.2% according to finviz.com
Expeditors International of Washington Inc
Expeditors International ($EXPD) is global logistics company with a market cap of $8.81 billion and headquartered out of Seattle. The firm employs over 13,000 people across six continents in areas such as freight forwarding, international trade, cargo insurance and distribution.
Like Harsco, Expeditors is another expensive stock, when looked at with a fresh approach. Price to earnings has moved to the expensive side at 26.43 with PEG moving up to 2.46. While the company may have little debt, earnings has been less than steady and the recent 15% surge in share price has sent RSI up to 82.6. This is a significantly oversold condition and has led to a large amount of insider selling (-16.50% insider transaction according to finviz.com leaving insider ownership at 0.10%).
If insiders feel this is a good time to sell then, there is every chance that the stock could stall from here. Plotting trailing twelve month EPS and 5 year expected EPS into a quick DCF analysis values the company at around $23.81, a 47% discount. Traders should be conservative in their approach and look for a price target of just $41.
Energizer Holdings Inc
The third of these 3 expensive stocks is Energizer Holdings ($ENR). Energizer are responsible for the popular brand of batteries and have been in operation since the 1890’s. The stock recently gapped up to hit $115 as investors became hopeful that a proposed stock split would unlock shareholder value. However, there’s also a case for saying that the opposite may be true. By splitting up the business, Energizer could face more intense competition from the likes of Procter & Gamble and that could damage revenues going forward.
There’s also a much bigger problem that faces Energizer, which is that the global trend for battery sales is declining as consumers move towards rechargeable devices. Objectively, the sharp up move has taken Energizer to overbought levels with an RSI reading of 71.65 and this has prompted insider selling (-8.19% of insider transactions leaving insider ownership at just 0.20%). PEG has now moved into expensive territory at 3.01 and there is potential for a sharp selloff that would see Energizer drop back to $105.