Turnaround stocks can be appealing if you’re a value investor. But you have to know the right moment to exit by spotting high-flying stocks to avoid. This has been a challenging 2023 with more losers than winners on the market. Between the cost of living crisis and the uncertain macroeconomic environment, challenges are plentiful.
But for companies that were beaten down throughout the pandemic— like those operating in the tourism and travel industry— conditions were rosy. Although people had less to spend, they were more willing than ever to shell out for experiences they’d been missing out on since the pandemic.
Also, it is a strong year for companies operating in clean energy fields. Automakers with electric vehicles are benefitting from governments around the world pledging to phase out fossil fuel cars. But some of the shine on these companies has been dulled as some countries shy away from previously aggressive EV transition plans. In addition, dwindling discretionary income means big purchases like new cars are rubbed off the shopping list.
Finally, the tech industry was slammed by interest rate worries. Some tech firms have seen investors return in force as many people predict central banks pulling back on their aggressive tightening schedules. There are plenty of tech names that have been woefully undervalued in the rush to offload tech stocks. Yet, others have clawed back more than their rightful valuations.
EV maker Tesla (NASDAQ:TSLA) has seen its share price more than double this year. But with expectations this high, it’s one of the high-flying stocks to avoid.
Conditions for the EV-maker are becoming more challenging. The most recent round of results showed profitability is in question now that the group’s cutting its prices. But this is a necessary evil to keep customers at the table. Competition is growing as the big names in the industry add more EVs to their lineups. This is the case particularly in China where growth in the EV market has been most promising. Plus, people generally have less to spend on their new cars thanks to the persistent cost of living crisis.
Tesla’s business model is reliant on volumes remaining intact. It’s massive Gigafactories are expensive to build. However, once they’re paid off, a higher percentage of each new car rattling through the production line drops straight through to the bottom line. If volumes fall, the reverse can be true. The rougher conditions ahead suggest this is a possibility. And with a price to earnings ratio in the mid-70’s, the group’s investors are expecting big things.
Carnival Corp (CCL)
Carnival’s (NASDAQ:CCL) recovery this year has been impressive. Regardless, its still one of the high-flying stocks to avoid.
With passenger numbers rising and more efficient ships making up the fleet, it’s a recipe for vast improvement. Still, the cruise ship operator is simply treading water following devastating blows throughout the pandemic. The most recent guidance keeps the profit outlook steady despite better than expected performance.
Although Carnival’s been able to entice people back onto its ships, it’s still fighting an uphill battle against a rising cost environment. Oil prices are a large part of Carnival’s cost base, and their recent uptick hasn’t been welcome news. Additionally, rising uncertainty among consumers is real, which raises potential for a big comedown. While people have been willing to blow their savings on so-called revenge travel in the wake of the pandemic, this is a trend that will likely end soon if unemployment rates rise and high inflation remains.
Finally, debt ballooned into a heavy ball and chain for Carnival over the pandemic. The group’s debt pile is enormous, around 7 times the midpoint for the group’s profit guidance for this year. That’s enough to raise some eyebrows, making this company one of the high-flying stocks to avoid for now.
Meta (NASDAQ:META) is last on this list of high-flying stocks to avoid, primarily because of a 150% increase on the books so far this year.
Starting with the positives, it’s encouraging to see the group refocus its efforts on improving its core business. Restructuring has made the business more sustainable, making investors happy. Further, spending is improving core offerings in order to compete with mounting pressure from other social media. A push toward AI integration within Instagram has been well-received by investors.
However, the future is still relatively murky for Meta, and the sharp increase in valuation is somewhat undeserved. Honestly, the benefits of AI in terms of margins is still a big question mark. Also, what about future growth? The metaverse is still a moonshot for the group, but progress and planning seems to be well and truly on the back burner.
On the date of publication, Marie Brodbeck 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.