In this article, we discuss 10 stocks that analysts think are overvalued. If you want to skip our detailed analysis of these stocks, go directly to Analysts Think These 5 Stocks Are Overvalued.
Company valuations are all over the place amid rising interest rates, inflationary pressure, and COVID-19 headwinds. Legendary investors like Warren Buffett, Carl Icahn, and Charlie Munger focus on a company’s intrinsic value when selecting investment portfolios. According to Morgan Stanley, the current prices in the stock market reflect a sharp tightening cycle from the Fed, which indicates that growth will likely moderate in the future. Many indices are already repricing to adjust to the new economic environment, and for returns to surpass market benchmarks, fixed-income investments in four key areas including investment-grade corporate bonds, high-yield bonds, securitized credit, and emerging-market debt are favorable.
After rebounding to approximately 5.5% in 2021, the World Economic Forum expects that global growth will decelerate significantly in 2022 to 4.1%, owing to ongoing COVID-19 variants, tightened fiscal support, and prevailing supply chain bottlenecks. It is important to look out for stable value stocks in such a dynamic market, and companies like JPMorgan Chase & Co. (NYSE:JPM), Verizon Communications Inc. (NYSE:VZ), and Bank of America Corporation (NYSE:BAC) are considered to be good value plays in this environment.
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Our Methodology
We researched companies that were considered to be overvalued by market analysts in 2021 and so far in 2022, mentioning analyst ratings for each stock, in addition to the hedge fund sentiment around the holdings to provide further context for readers.
Analysts Think These Stocks Are Overvalued
10. Rivian Automotive, Inc. (NASDAQ:RIVN)
Number of Hedge Fund Holders: N/A
Rivian Automotive, Inc. (NASDAQ:RIVN) is a California-based manufacturer of electric vehicles, offering pickup trucks and sports utility vehicles. Rivian Automotive, Inc. (NASDAQ:RIVN) posted on December 16 its Q3 results, where the company revealed a loss per share of $7.68, missing estimates by $0.85. Similarly, the $1 million revenue also missed market consensus estimates.
Gene Munster, managing partner at Loup Ventures, joined CNBC for a discussion on November 11, where he stated that Rivian Automotive, Inc. (NASDAQ:RIVN)’s valuation does not make any sense, since the company’s projected 2023 valuation per vehicle if it produces 70,000 units comes in at $1.3 million, whereas Tesla, Inc. (NASDAQ:TSLA)’s valuation per EV in 2023 clocks in at $500,000. Rivian Automotive, Inc. (NASDAQ:RIVN) is trading at 2.5 times Tesla’s valuation, but the stock does not offer the same resilience, upside, and autonomy as Tesla, which is why it is highly overvalued according to Munster.
On January 26, JPMorgan analyst Ryan Brinkman lowered the price target on Rivian Automotive, Inc. (NASDAQ:RIVN) to $84 from $104 and kept a Neutral rating on the shares. The analyst slightly lowered expectations for Q4 Rivian Automotive, Inc. (NASDAQ:RIVN) builds to 800 from 900, but this has no impact on his valuation. Rather, the reduction in the price target is a consequence of a higher assumed discount rate.
Here is what Greenlight Capital has to say about Rivian Automotive, Inc. (NASDAQ:RIVN) in its Q4 2021 investor letter:
“We made a material gain in Rivian (RIVN) as a result of its IPO. We met Rivian Automotive, Inc. (NASDAQ:RIVN) ’s sponsors in 2018 as part of our continued work on electric vehicles, and were favorably impressed by their technology and discipline. In mid-2020, we made a small investment at a $10 billion valuation. In November, Rivian Automotive, Inc. (NASDAQ:RIVN) went public at a $70 billion valuation and traded to a peak valuation of $162 billion. We hedged in the options market to lock in a minimum valuation of about $120 billion for a good chunk of our position. While we are believers in the company, we did not have material exposure at year end.”
9. AMC Entertainment Holdings, Inc. (NYSE:AMC)
Number of Hedge Fund Holders: 17
AMC Entertainment Holdings, Inc. (NYSE:AMC) is a Kansas-based company that owns and operates movie theaters across the United States and internationally. Hedge fund sentiment decreased around AMC Entertainment Holdings, Inc. (NYSE:AMC) in Q3 2021, as the number of long positions held in the stock declined to 17 from 21 in the quarter earlier.
On February 2, AMC Entertainment Holdings, Inc. (NYSE:AMC) announced that it will issue $500 million of first lien senior secured notes due 2029 in a private offering. The company priced its upsized private offering of $950 million of 7.500% first lien senior secured notes due 2029, representing an increase of $450 million from previous offering size.
Benchmark analyst Mike Hickey on February 1 noted that AMC Entertainment Holdings, Inc. (NYSE:AMC) announced preliminary Q4 results which included both revenue and profit that “meaningfully” exceed the consensus view, and this reaffirms his belief that the domestic box office continues to bounce back from the COVID-19 pandemic. While AMC Entertainment Holdings, Inc. (NYSE:AMC) was “very profitable” on an AEBITDA calculation and delivered strong positive cash flow, the stock’s current valuation remains at “extreme levels” when compared to peers, said the analyst, who has a Hold rating and no price target on AMC Entertainment Holdings, Inc. (NYSE:AMC) shares.
In Q3 2021, Renaissance Technologies held a prominent stake in AMC Entertainment Holdings, Inc. (NYSE:AMC), with 2.50 million shares worth over $95 million.
Here is what Bronte Capital has to say about AMC Entertainment Holdings, Inc. (NYSE:AMC) in its Q3 2021 investor letter:
“AMC is simply an extreme example of what is probably a non-promoted delusion. It is a highly levered company owning multiplex cinemas. (Full disclosure – we are short a tiny position – about a tenth of a percent of our fund.)
Business prospects for AMC Entertainment Holdings, Inc. (NYSE:AMC) are poor.
Every year large screen televisions and home theater equipment become cheaper. Every year the attraction of the couch at home versus the multiplex improves. It looked – preCovid – to be a slow burn to bankruptcy.
That is not guaranteed though. Hollywood might come up with a better offer. Or AMC might be saved by some new technology (such as a truly realistic 3D that does not give you headaches).
Post Covid, AMC looks like a fast-track to bankruptcy even after it has raised over a billion dollars from mostly retail investors.
AMC is the subject of a widespread delusion that believes that hedge funds manipulate the stock in “dark pools” and with massive numbers of fake shares. They allege the US Securities Regulators are in cahoots with Citadel (a large market maker) to manipulate the stock. They also believe by ganging up (people power) they can “democratize capitalism” and destroy the dastardly short sellers.”
8. The Trade Desk, Inc. (NASDAQ:TTD)
Number of Hedge Fund Holders: 19
Headquartered in Ventura, California, The Trade Desk, Inc. (NASDAQ:TTD) is a technology company that provides a self-service on-demand platform, enabling users to create, manage, and optimize digital advertising campaigns in multiple formats and channels. With third quarter earnings clocking in at $0.18, and revenue for the period equaling $301 million, The Trade Desk, Inc. (NASDAQ:TTD)’s price to earnings ratio of 137.98 is unjustified, making the stock highly overvalued.
In the third quarter of 2021, 19 hedge funds reported owning stakes in The Trade Desk, Inc. (NASDAQ:TTD), totaling $499 million, down from 25 funds holdings stakes worth roughly $720 million in The Trade Desk, Inc. (NASDAQ:TTD) in the prior quarter. Zevenbergen Capital Investments held the leading position in The Trade Desk, Inc. (NASDAQ:TTD) in Q3 2021, with 3.8 million shares valued at $269.4 million.
Stifel analyst Mark Kelley resumed coverage of The Trade Desk, Inc. (NASDAQ:TTD) on January 31 with a Hold rating and a $68 price target. The analyst stated that while the feedback he heard about the company was mostly positive, he believes The Trade Desk, Inc. (NASDAQ:TTD) shares are “stretched at current levels”. He added that much of the investor optimism on the stock is focused around Connected TV advertising, which “still has room to improve”.
Unlike JPMorgan Chase & Co. (NYSE:JPM), Verizon Communications Inc. (NYSE:VZ), and Bank of America Corporation (NYSE:BAC), analysts believe that The Trade Desk, Inc. (NASDAQ:TTD) is an overvalued stock.
Here is what Rowan Street Capital has to say about The Trade Desk, Inc. (NASDAQ:TTD) in its Q4 2021 investor letter:
“Trade Desk (TTD)
Revenues grew from $477 million in 2018 to estimated $1.1 billion for 2021, which represents a 2.4x growth over past 3 years or 33% per annum.
Gross profits grew even faster at 35% per annum.
TTD Stock has grown approximately 600% since the beginning of 2019.
The stock advance has surpassed an already very rapid growth in the business itself as the price-to-sale multiple has grown from 7x to current 35x (see below). Trade Desk was a relatively unknown company back in 2017, operating in the space that was widely viewed with a lot of skepticism and now its has grown into a leader in the industry with solid growth and profitability (even though its still very early in its growth stage) and a massive total addressable market (TAM). Thus, Mr. Market has not only warmed up to TTD, but has grown very enthusiastic about the future potential of this business. We have been fortunate to acquire a position in TTD stock during pandemic lows in April of 2020 (our cost basis is $17.40) — the only time when its valuation seemed reasonable and presented some margin of safety.”
7. McCormick & Company, Incorporated (NYSE:MKC)
Number of Hedge Fund Holders: 35
McCormick & Company, Incorporated (NYSE:MKC) distributes and markets spices, seasoning mixes, condiments, and other consumer and flavor solutions to the food industry, supplying directly to distributors and wholesale foodservice suppliers. The company was founded in 1889 and is headquartered in Hunt Valley, Maryland.
Publishing its Q4 results on January 27, McCormick & Company, Incorporated (NYSE:MKC) posted earnings per share of $0.84, beating estimates by $0.04. Revenue over the period jumped 11.07% year-over-year to $1.73 billion, outperforming estimates by $16.38 million.
Credit Suisse analyst Robert Moskow downgraded McCormick & Company, Incorporated (NYSE:MKC) on January 19 to Neutral from Outperform with an unchanged price target of $100. The analyst cites valuation for the downgrade with the stock near the price target. The analyst still believes the company will meet consensus earnings estimates for Q4 and guide 2022 earnings slightly above consensus.
On November 30, McCormick & Company, Incorporated (NYSE:MKC) declared a $0.37 per share quarterly dividend, which is an 8.8% increase from its prior dividend of $0.34. The dividend was paid on January 10, to shareholders of record on December 31.
A total of 35 hedge funds were bullish on McCormick & Company, Incorporated (NYSE:MKC) in Q3 2021, with stakes totaling $1.78 billion, as compared to 34 funds in the prior quarter, holding stakes in McCormick & Company, Incorporated (NYSE:MKC) worth over $2 billion. Fundsmith LLP is the biggest McCormick & Company, Incorporated (NYSE:MKC) stakeholder, with 18.7 million shares worth $1.5 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.”
6. International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders: 41
International Business Machines Corporation (NYSE:IBM) was incorporated in 1911 and is headquartered in Armonk, New York, providing integrated technology solutions and services worldwide. In the third quarter of 2021, 41 hedge funds held long positions in International Business Machines Corporation (NYSE:IBM), with collective stakes totaling $1.40 billion.
Morningstar analyst Julie Bhusal Sharma stated in late October that International Business Machines Corporation (NYSE:IBM) is indeed overvalued and the company’s performance has not been up to the mark as compared to its run a decade ago. Earnings are not living up to the innovation that International Business Machines Corporation (NYSE:IBM) once had, and it has lagged its peers, according to Sharma.
International Business Machines Corporation (NYSE:IBM) on February 1 declared a $1.64 per share quarterly dividend, in line with previous. The dividend is payable on March 10, to shareholders of record on February 11.
On January 24, International Business Machines Corporation (NYSE:IBM) posted its Q4 results. The company reported earnings per share of $3.35, beating estimates by $0.06. Revenue over the quarter dropped 18% year-over-year, totaling $16.70 billion, outperforming estimates by $730.50 million.
Tigress Financial analyst Ivan Feinseth reiterated a Neutral rating on International Business Machines Corporation (NYSE:IBM) and initiated a 12 month target price of $133 on January 28. The analyst believes “intense” competition and a lack of major growth catalysts provide little opportunity for significant near-term share gains. With that said, International Business Machines Corporation (NYSE:IBM) “looks close to turning a corner, having reported the best sales growth in 10 years on strong cloud demand”, according to Feinseth.
Arrowstreet Capital held a prominent stake in International Business Machines Corporation (NYSE:IBM) as of Q3 2021, with 2.86 million shares worth $398 million.
International Business Machines Corporation (NYSE:IBM) still remains popular among hedge funds, just like JPMorgan Chase & Co. (NYSE:JPM), Verizon Communications Inc. (NYSE:VZ), and Bank of America Corporation (NYSE:BAC).
Here is what St. James Investment Company has to say about International Business Machines Corporation (NYSE:IBM) in its Q4 2021 investor letter:
“IBM was not the first company to build computers. The distinction belongs to Sperry-Rand’s subsidiary UNIVAC, which introduced the first commercially successful computers in the early 1950s. In this era, IBM did possess the largest research and development department of the business machines industry and quickly caught up, introducing cost-competitive computers a few years after UNIVAC. By the late 1950s, IBM held the dominant market share in computers. IBM also touted a vastly superior sales organization, which used a sales tactic called “paper machines” (the equivalent of today’s “vaporware”). If a competitor’s product was selling well in a market segment that IBM had yet to penetrate, the company would announce a competing product and start taking orders for the “paper machine” long before it was available.
One cannot overstate how powerful IBM was in the computer industry in the 1950s and 1960s. Every competitor rightly worried that if their product worked too well for too long, it was only a matter of
time before an army of IBM salesforce representatives mobilized. In their easily recognizable uniforms of starched white shirts, red ties and blue suits, IBM marketers marched on their customers and offered a more expensive, but much more defensible, choice. “Nobody gets fired for buying IBM” was a common phrase. Even competitors acknowledged that the company excelled at sales. As a UNIVAC executive once complained, ‘It doesn’t do much good to build a better mousetrap if the other guy selling mousetraps has five times as many salesmen.’” (Click here to see the full text)
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Disclosure: None. Analysts Think These 10 Stocks Are Overvalued is originally published on Insider Monkey.
