The U.S. stock market has been on quite the run over the past 12 months, fueled by potential interest rate cuts and economic optimism. Moreover, the generative AI craze and meme stock trading frenzy have been two major needle-movers turbocharging the market. Hence, many in the Wall Street punditry believe the market’s overheated, making it an excellent time to consider a few stocks to sell.
Most stocks have surfed the speculative and AI trading wave, making them prime candidates for a fresh assessment. Moreover, considering that most investors expect a rate cut in September, this is another reason to offload stocks to sell and effectively optimize your portfolio. That said, here are three bloated stocks to sell, with their stock prices significantly divorced from their fundamentals. These stocks present limited upside potential and continue to be show-me stories despite the market’s enthusiasm for them.
Stocks to Sell: Carvana (CVNA)
Online used car retailer Carvana (NYSE:CVNA) defied expectations following an amazing turnaround in the past year. Many anticipated a bankruptcy filing, but Carvana flipped the script completely. Following an adjustment of its debt obligations and an impressive recovery in its fundamentals, CVNA stock has soared more than 153% year-to-date (YTD).
Its first-quarter (Q1) showing, in particular, proved massive for its business. It posted a remarkable Q1 profit of $49 million, an incredible pivot from a loss of $286 million in the previous year. However, it’s imperative to highlight that this profit included a one-time $75 million boost from fair value adjustments on warrants to acquire AI-driven insurer Root (NASDAQ:ROOT).
Moreover, despite the impressive financial turnaround, Carvana still faces major challenges with a lingering debt load of $5.5 billion. Therefore, investors must temper their enthusiasm, considering the stock’s rapid jump in the past 12 months and its substantial financial obligations.
C3.ai (AI)
C3.ai (NYSE:AI), known for its enterprise-scale AI software solutions, is another stock riding high on the AI bandwagon effect. AI stock is up 27% in the past three months, comfortably outpacing the sector median. However, this jump is more speculative than substantial, with the firm yet to turn a profit that justifies its current valuation. The market hasn’t quite come to grips with the real demand for enterprise-level AI software, which complicates things for the company.
In its fourth-quarter (Q4) report, C3.ai reported a 16% year-over-year (YOY) increase in sales, reaching $310 million. Despite the superb top-line growth, its losses increased to $280 million from $268 million. Moreover, the firm now expects adjusted operating losses to range between $95 million and $125 million for the upcoming year, considerably higher than previous forecasts. Also, with the growing preference for AI companies with tangible growth, the outlook for C3.ai remains up in the air.
AMC Entertainment (AMC)
AMC Entertainment (NYSE:AMC) continues to navigate the choppy waters of the meme stock frenzy, marked by massive volatility.
On the fundamental level, though, nothing has changed. The embattled theater chain operator remains overwhelmed by its crushing debt burden. Despite repaying $1 billion in debt since 2022, AMC still has a worrying $4.6 billion remaining, with $2.8 billion maturing in just two years.
Moreover, the secular shift towards streaming services compounds AMC’s financial struggles. The OTT video market is poised to expand staggeringly, outshining traditional movie-going experiences with its robust growth.
AMC must also contend with a disappointing box office outlook for the year, weighing down its top-line results. Also, with the need to consistently raise capital through equity sales to manage interest payments and operational deficits, AMC is on a path toward destruction. Thus, it’s wise to tune out the meme stock clamor and steer clear of AMC.
On the date of publication, Muslim Farooque did not have (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.