Recessions and market corrections seldom happen in the same way: first slowly, then all at once. While the jury may still be out on both, global traders were surprised to wake up this morning to a flurry of bad news, pushing Japan’s index to its biggest one-day crash in 40 years, while the traded 4% lower in the premarket at the time of writing.
Among the various catalysts converging simultaneously, a rate hike from the has joined growing fears of a US recession, sparked by Friday’s sub-par. And, if that wasn’t enough, Warren Buffett’s Berkshire Hathaway (NYSE:) disclosed that it sold massive amounts of stock in Q2, prompting trades to flee household names such as Apple (NASDAQ:) and Bank of America (NYSE:).
But as the thriving 2024 market hits a pivotal point, the question that lies ahead is what to do now.
While the first human reaction is to drop everything and run for the hills, savvy investors know that profits and emotions don’t go hand in hand. In fact, market corrections (and even market crashes) are normal and can —if you position yourself well— prove to be great opportunities.
And how do you do that? Simple – By running away from overvalued stocks, which present a high risk, and positioning your portfolio on high-value plays that still have room to grow.
Only by knowing the true value of the stocks you own can you succeed in the long-term game.
Well, not anymore. InvestingPro’s flagship FairValue tool provides a streamlined view of the true value of every stock in the market, so you don’t blindly hold on to stocks beyond their prime, nor miss out on great buying opportunities when they arise.
InvestingPro’s exclusive Fair Value indicator leverages 17+ valuation models to analyze a company’s financial data and cash flow, providing a target price for each stock. This makes it easier for investors to assess the potential value of a stock without needing extensive financial expertise. By aggregating and interpreting complex data, InvestingPro helps investors make more informed decisions.
And the best part? It only costs you less than $8 a month if you subscribe today as part of our exclusive summer sale.
Now let’s take a look at two of such stocks to understand how Fair Value works and why you should avoid them.
1. Costco – 24.7% Downside in the Offing
Costco (NASDAQ:) has significantly outperformed the broader market this year, with its stock rising 24.7%, compared to the retail sector’s (NYSE:) modest 2.43% gain. With the market selling off and earnings not keeping up with the stock’s growth, this is exactly the kind of name investors should avoid as the retail giant’s gains might be at risk. According to InvestingPro’s fair value tool, Costco’s stock could lose all its 2024 gains, signaling a potential downside of 24.7%.
Source: InvestingPro
This isn’t the only stock facing downside risks according to the fair value tool. One of our previous (link to the piece) highlighted two other stocks that, once flagged by the indicator, eventually suffered losses exceeding 35%. Those unaware of these warnings were caught off guard.
2. Eli Lilly – Ripe for a 22.8% Correction?
Eli Lilly’s (NYSE:) stock has been on a roll so far this year, posting some tremendous gains of about 39% YTD. But as the bulls run for the exits and market correction deepens, would it be wise to hold on to the stock that’s sitting on these amazing gains?
Source: InvestingPro
Right now, the fair value tool signals that the stock is ripe for a correction, and at risk of losing more than half of its gains this year. And we would also have to factor in the fact that the stock has seen a meteoric rise of about 345%+ since January 2021. This makes the case for locking in profits on this stock even stronger.
Those who subscribe to InvestingPro can harness the power of the fair value tool to pick the right time to exit a stock, especially when the broader market is selling off.
Bottom Line: Other Stocks Vulnerable to a Selloff
Eli Lilly and Costco aren’t the only stocks vulnerable to a selloff, according to fair value. Here’s the list of stocks alongside their downsides as indicated by the tool:
Source: InvestingPro
The top two in this list were the stocks discussed in the article above, Eli Lilly, and Costco. The 8 other stocks mentioned in the list are showing a downside risk as well.
Already a Pro user? Subscribe to InvestingPro today to see the full list of overvalued stocks.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.
Title: Unprecedented Market Volatility: Expert Investment Manager Reveals Strategies for Maximizing Profits
As the world’s leading investment manager, I have closely monitored the recent fluctuations in the financial markets. The unprecedented volatility has left many investors feeling uncertain about the future of their portfolios. However, I am here to provide you with expert advice on how to navigate these turbulent times and come out on top.
In times of market uncertainty, it is crucial to stay calm and focused on your long-term investment goals. Avoid making impulsive decisions based on short-term market fluctuations. Instead, stick to your investment strategy and consider taking advantage of buying opportunities that may arise during market downturns.
Diversification is key to weathering market volatility. By spreading your investments across a variety of asset classes, you can reduce your overall risk exposure. Consider reallocating your portfolio to include a mix of stocks, bonds, and alternative investments to help mitigate potential losses.
It is also important to stay informed about market trends and economic indicators. Keep a close eye on global events that may impact the financial markets, such as geopolitical tensions or changes in monetary policy. By staying informed, you can make more informed decisions about your investments.
In conclusion, while market volatility can be unsettling, it also presents opportunities for savvy investors to capitalize on undervalued assets. By following these strategies and staying disciplined in your investment approach, you can navigate turbulent market conditions with confidence and potentially maximize your profits in the long run.
Analysis:
This content provides expert advice from a top investment manager on how to navigate market volatility and maximize profits. By emphasizing the importance of diversification, staying informed about market trends, and remaining disciplined in your investment approach, readers can learn how to make informed decisions during uncertain times. Following these strategies can help individuals protect their portfolios and potentially increase their returns in the long term.