These Stocks Could Be Ripe for a Short Following a 50% Rally Since August Lows
2024.09.20 11:12
- S&P 500 hit a new all-time high recently, fueled by strong tech sector performance.
- Russell 1000 has seen impressive gains too, with over 137 stocks rising by 20% or more in just 32 trading days.
- Following this rebound off the August lows, these stocks could be becoming too overvalued.
- Looking for actionable trade ideas to navigate the current market volatility? Unlock access to InvestingPro’s AI-selected stock winners for under $9 a month!
The U.S. stocks rallied as the reached a new all-time high following the unexpected 50-basis-point rate cut.
This market seems to have been driven once again by strong outperformance in the technology sector (NYSE:), with the weakening of the further boosting equities and increasing risk appetite.
Meanwhile, the also rose by over 10% from its early August lows. The average stock within the Russell 1000 gained 10%, indicating a strong market breadth.
This rebound is notably different from the first half of the year when the market was primarily led by mega-cap stocks. 
The rally pushed 137 stocks in the index to gain more than 20% (over just 32 trading days), with 21 stocks rising over 40%.
Here are the top performers from the past month:
– Affirm (NASDAQ:) +88%
– AppLovin (NASDAQ: ) +84%
– Duolingo (NASDAQ:) +66%
– Zillow (NASDAQ:) +58%
– CAVA Group (NYSE:) +57%
– Doximity (NYSE:) +56%
– Coherent (NYSE:) +55%
– Palantir (NYSE:) Tech +53%
– Roku (NASDAQ:) +50%
– GE Vernova (NYSE:) +49%
Are These Stocks Ripe for a Correction?
Let’s add these stocks to PRO watchlists, sorted by their projected declines in Fair Value.
A majority of these stocks are concentrated in the Consumer Discretionary Goods and IT sectors, while the Industrial, Healthcare, Communication Services, Real Estate, and Financial sectors account for a smaller portion.
Affirm Remains the Most Overvalued Following Rally
Furthermore, ranking these stocks by Beta value shows that Affirm is not only the best stock, but also the most likely to experience significant fluctuations, not just upward, confirming the potential declines suggested by the Fair Value Pro.
Beta is a measure of a stock’s sensitivity to market movements. A beta above 1 means the stock is more volatile than the market, while a beta below 1 suggests lower volatility.
A high beta can signal greater potential gains in market upturns but also exposes investors to higher potential losses during downturns and is often considered a bearish indicator due to the increased risk.
Affirm’s possible weakness is further highlighted by its financial Health Score of 2 out of 5, indicating a “decent” financial performance based on a comprehensive assessment of its balance sheet.
Another important factor is the company’s Price-to-Book (P/B) ratio, which suggests that its stock price is significantly higher than its book value.
This ratio is calculated by dividing the stock’s current closing price by its book value per share from the last quarter, showing how much investors are willing to pay for each dollar of the company’s equity.
Additionally, analysts predict that Affirm will not be profitable this year, with expenses expected to exceed revenues. Lack of profitability often raises red flags for investors, as it challenges the company’s ability to generate returns for shareholders.
Source: InvestingPro
Bottom Line
The impressive performance of the Russell 1000 underscores broad market strength, with many stocks experiencing significant gains. However, investors should approach opportunities like Affirm with caution, as similar stocks may be becoming too overvalued.
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Disclaimer: This article is written for informational purposes only. It is not intended to encourage the purchase of assets in any way, nor does it constitute a solicitation, offer, recommendation or suggestion to invest. I would like to remind you that all assets are evaluated from multiple perspectives and are highly risky, so any investment decision and the associated risk is at the investor’s own risk. We also do not provide any investment advisory services. We will never contact you to offer investment or advisory services.
