In this article, we discuss 5 overvalued stocks to watch. If you want to see more stocks in this selection, check out “More Pain”: Morgan Stanley Analyst’s Latest Prediction and 10 Overvalued Stocks to Watch.
5. Badger Meter, Inc. (NYSE:BMI)
Number of Hedge Fund Holders: 18
P/E Ratio as of September 19: 43.57
Badger Meter, Inc. (NYSE:BMI) is a Wisconsin-based provider of flow measurement, quality, control, and communication solutions in the United States and internationally. As of September 19, Badger Meter, Inc. (NYSE:BMI)’s P/E ratio stands at 43.57, rendering it overvalued. Despite the company’s revenue and margin growth prospects, the valuation is not attractive, and many industry peers are trading at meaningful discounts.
Northcoast analyst Ryan Connors on July 18 initiated coverage of Badger Meter, Inc. (NYSE:BMI) with a Neutral rating and no price target. The analyst favors companies operating in the agriculture, irrigation, and industrial sectors, where he noted the demand outlook “appears more promising” relative to construction and municipals. In addition, the analyst believes the regulated water utility space is positioned for “superior estimate revision trends” compared to industrials.
According to Insider Monkey’s data, 18 hedge funds were bullish on Badger Meter, Inc. (NYSE:BMI) at the end of Q2 2022, with collective stakes worth $143.5 million. Ian Simm’s Impax Asset Management is the leading stakeholder of the company, with 1.16 million shares valued at $94 million.
4. DiamondRock Hospitality Company (NYSE:DRH)
Number of Hedge Fund Holders: 22
P/E Ratio as of September 19: 40.01
DiamondRock Hospitality Company (NYSE:DRH) is a real estate investment trust that owns geographically diversified hotels and destination resorts. Trading at a price-to-earnings multiple of 40.01 as of September 19, DiamondRock Hospitality Company (NYSE:DRH) is categorized as an overvalued stock.
On August 29, Wells Fargo analyst Dori Kesten downgraded DiamondRock Hospitality Company (NYSE:DRH) to Equal Weight from Overweight and lowered the price target to $10 from $11. DiamondRock Hospitality Company (NYSE:DRH) has the second largest exposure to leisure demand among the lodging REITs, which will create prominent headwinds relative to peers, the analyst told investors in a research note. Additionally, relative to its peers, DiamondRock Hospitality Company (NYSE:DRH) has greater refinancing needs after 2023 maturities, which could serve as a “talking point/headwind for investors in a recessionary environment,” said the analyst.
According to Insider Monkey’s Q2 data, 22 funds were bullish on DiamondRock Hospitality Company (NYSE:DRH), compared to 18 funds in the earlier quarter. Richard S. Pzena’s Pzena Investment Management is the leading position holder in the company, with 6.4 million shares worth $52.65 million.
3. B&G Foods, Inc. (NYSE:BGS)
Number of Hedge Fund Holders: 10
P/E Ratio as of September 19: 30.99
B&G Foods, Inc. (NYSE:BGS) is a New Jersey-based company that distributes shelf-stable and frozen foods in the United States, Canada, and Puerto Rico. B&G Foods, Inc. (NYSE:BGS)’s P/E multiple stands at 31, which renders it overvalued. The company fell short of Wall Street consensus on earnings and revenue in the June quarter. The adjusted EBITDA declined from $363 million as of March 1 to $310 million as of August 4.
BMO Capital analyst Kenneth Zaslow on August 8 lowered the price target on B&G Foods, Inc. (NYSE:BGS) to $21 from $29 and reiterated a Market Perform rating on the shares. The analyst cited B&G Foods, Inc. (NYSE:BGS)’s Q2 earnings miss, which reflected rising input costs ahead of pricing actions. He further noted B&G Foods, Inc. (NYSE:BGS)’s slashed 2022 EBITDA outlook to $300 million-$320 million, reflecting surging inflation and ongoing supply chain constraints.
Among the hedge funds tracked by Insider Monkey, B&G Foods, Inc. (NYSE:BGS) was part of 10 public stock portfolios at the end of June 2022, compared to 11 funds in the prior quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP is the biggest stakeholder of the company, with 919,357 shares worth roughly $22 million.
2. The Clorox Company (NYSE:CLX)
Number of Hedge Fund Holders: 31
P/E Ratio as of September 19: 38.33
The Clorox Company (NYSE:CLX) is a California-based company that manufactures and markets consumer and professional products, operating through four segments – Health and Wellness, Household, Lifestyle, and International. Its P/E ratio of 38.33 is too high for a consumer staples company.
On September 14, BofA analyst Anna Lizzul reinstated coverage of The Clorox Company (NYSE:CLX) with an Underperform rating and a $130 price target. Gross margins at The Clorox Company (NYSE:CLX) dropped about 800 basis points in FY22 as the company suffered inflation costs over 10-times the typical yearly amount across commodities, manufacturing, and logistics, noted the analyst. She expects cost inflation to continue to be high through the next year.
According to the second quarter database of Insider Monkey, 31 hedge funds were bullish on The Clorox Company (NYSE:CLX), compared to 26 funds in the earlier quarter. John Overdeck and David Siegel’s Two Sigma Advisors is the leading position holder in the company, with 527,100 shares worth $74.3 million.
1. McCormick & Company, Incorporated (NYSE:MKC)
Number of Hedge Fund Holders: 33
P/E Ratio as of September 19: 31.18
McCormick & Company, Incorporated (NYSE:MKC) is an American food company that manufactures and sells spices, seasoning mixes, and condiments. The stock dropped 5.9% on September 14 after the firm slashed its 2022 guidance and reported preliminary Q3 results that fell short of Wall Street expectations, driven by macro headwinds that weigh on performance. These include moderation of consumption trends, supply chain challenges, divestiture of the Kitchen Basics segment, and unfavorable currency movement. With a price-to-earnings multiple of 31.18 as of September 19, McCormick & Company, Incorporated (NYSE:MKC) is an overvalued stock.
Barclays analyst Andrew Lazar on September 12 slashed the price target on McCormick & Company, Incorporated (NYSE:MKC) to $82 from $94 and assigned an Equal Weight rating to the shares. The company preannounced lower than anticipated Q3 sales and earnings and cut its full year guidance on both metrics, the analyst told investors in a research note.
According to Insider Monkey’s data, McCormick & Company, Incorporated (NYSE:MKC) was part of 33 hedge fund portfolios at the end of Q2 2022, compared to 34 funds in the preceding quarter. Terry Smith’s Fundsmith LLP is the leading position holder in the company, with approximately 15.5 million shares worth $1.3 billion.
Here is what ClearBridge Sustainability Leaders Strategy has to say about McCormick & Company, Incorporated (NYSE:MKC) in its Q3 2021 investor letter:
“Within consumer staples, we sold out of Unilever, a great company and sustainability leader that we believe faces margin headwinds as it invests to promote growth, and replaced it with McCormick, a leader in food seasonings and flavors. McCormick is a high-quality business that has lagged recently due to the negative COVID-19 impacts on the business, which provided us with an attractive entry point. The company is also levered to the healthy eating trend, as seasonings are a healthier substitute for sugar and fat.”
You can also take a look at 10 Monthly Dividend Stocks with Highest Yields and 10 Best LNG Stocks To Buy.
