There’s plenty out there that could potentially drive a broad market pullback, but there are also plenty of individual stocks due for a pullback. Irrespective how the market performs from here, these types of stocks may be in for considerable declines in price.
Several of the stocks that have thus far this year been top-performers fit into this category. While in some cases, big run-ups have been justified, there are plenty that can be deemed as situations where shares have moved up “too far, too fast.”
Admittedly, just because investors have gone overboard about a certain stock, doesn’t mean the market will soon come to its senses. Just ask the bears who have lost billions betting against Carvana (NYSE:CVNA).
However, don’t assume high-flier resiliency is universal. In the case of the following seven stocks due for a pullback, there are identifiable factors that strongly suggest a reversal lies ahead for each one.
Cava Group (CAVA)
Cava Group (NYSE:CAVA) bolted higher after its June 2023 IPO, but slid lower throughout the rest of last year. This year, however, it’s been a different story. Shares in this Mediterranean restaurant chain have been on a tear.
Since January, CAVA stock is up 43%, making it one of this year’s top performing stocks. Chalk up this rally to beat-and-raise quarterly results and an analyst upgrade. Yet while the bulls may be betting that Cava is the next big restaurant growth story, this possibility has become overly priced-in.
CAVA now trades for a staggering 257.2 times forward earnings. Yes, this valuation could be sustainable in the short-term, if sentiment holds. However, with short-interest at fairly moderate levels (15.7% of float), instead of squeezing higher when the company next reports results sometime next month, shares could move lower on “sell the news” profit taking.
Constellation Energy (CEG)
Spun off from Exelon (NYSE:EXC) in 2022, Constellation Energy (NASDAQ:CEG) is an independent electricity generation company. Over the past year, CEG shares have zoomed 146.9% higher. Year-to-date alone, CEG is up by 57.3%.
A major factor behind the sudden popularity of CEG stock has to do with the company’s “green wave” bona fides. Investors and decision-makers alike have warmed up to the idea of nuclear power’s potential to produce clean energy on a massive scale. Constellation has significant nuclear capacity, so it could strongly benefit from increased demand for zero-emissions nuclear power.
Still, while some of Constellation’s rally may be justified, it’s possible that the market has gone overboard. Shares now trade at a big premium to other “green wave” utilities stocks, like NextEra Energy (NYSE:NEE). As any subsequent stumble could drive a de-rating, consider CEG one of the top stocks due for a pullback.
Disney (DIS)
While I’ve recently been bullish about Disney (NYSE:DIS), at the same time I wouldn’t rule out the possibility of a pullback for the media conglomerate’s shares sometime down the road.
DIS stock has bounced back in a big way over the past four months. Year-to-date, shares are up by nearly 25%. Sentiment has improved in a big way, thanks largely to promising developments, including progress in making the company’s streaming segment profitable. Nevertheless, after the latest round of enthusiasm, sentiment could soon lean bearish again.
Why? As Seeking Alpha commentator Value Kicker recently argued, Disney CEO Bob Iger’s cost-focused turnaround strategy will only go so far. If the company fails to get back into growth mode, after running out of fat to trim from its cost structure, shares could pull back in a big way. DIS trades at a massive premium to other “big media” stocks.
General Electric (GE)
Earlier this month, General Electric (NYSE:GE) completed its final spin-off. The former industrial conglomerate has now transformed into an aerospace pure play. Investors have been pleased with this transformation.
GE stock has nearly doubled in the past year. Year-to-date, shares are up by more than 50%. However, with this catalyst now played out, GE may now be one of the stocks due for a pullback. Yes, it’s not only been the restructuring that has made the market bullish about General Electric.
There is also great optimism about future aircraft component demand. Still, it’s very possible investors are overestimating this potential growth catalyst. Shares today trade for 39 times forward earnings. Possibly now “priced for perfection,” any sort of earnings hiccup or slip-up may lead to a severe correction for the stock. Even as momentum remains on its side, err on the side of caution, and sell GE now.
Eli Lilly (LLY)
As you may know, Eli Lilly’s (NYSE:LLY) continued hot run has been driven by the pharma firm’s recently-launched diabetes and weight-loss drugs, Mounjaro and Zepbound.
Anticipating that off-the-charts demand for these products will keep on moving the needle for the company’s profitability and sales, LLY stock has kept on cruising to loftier price levels over the past years. Shares have doubled over the past twelve months, and are up nearly 28% year-to-date.
However, while the initial phase of the rally may have been justified, the market has arguably gone too far. LLY now trades for 60.2 times forward earnings. Even when taking into account the fact that earnings could nearly double between now and 2026, the Mounjaro/Zepbound upside is clearly accounted for, and then some. With this in mind, if you already own LLY, take profit now, before it’s too late. Otherwise, hold off buying.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) is another name that I’m bullish on, but concede that it may be one of the stocks due for a pullback. Shares in the Facebook and Instagram parent have been on a hot run since 2023, and this winning streak has continued into 2024.
Year-to-date, META stock is up by 41.8%. Yet while the social media giant has impressed the market with its cost-cutting and AI implementation success, as Louis Navellier and the InvestorPlace Research Staff recently argued, the stock could soon experience a post-earnings correction.
Even if the company manages to beat already-high expectations, too many investors may decide to make the earnings release their time to make an exit. Macro worries could also knock down META in the near-term. That’s not to say you need to stay away completely. However, if you’ve been thinking about buying META, there’s no reason to rush.
Netflix (NFLX)
As of this writing, a sell-off for Netflix (NASDAQ:NFLX) may be starting to take shape. That is, following the company release of its latest quarterly results post-market on April 18, NFLX has pulled back. Until now, NFLX, up 25.4% year-to-date, had been trending up.
The video streaming powerhouse beat Wall Street forecasts for the quarter. Subscriber numbers were also solid. Alas, NFLX stock still sold off, as the market focused on the major negative with the earnings release: the latest updates to guidance. These suggested that the company’s rate of growth is coming up short of analyst expectations.
Investors may be willing to price growth stories at high earnings multiples, yet if evidence emerges that this high growth is slowing down, the market typically reacts accordingly. In the case of NFLX, this may mean a continued re-rating to the downside, as investors and analysts walk back expectations.
On the date of publication, Thomas Niel did not hold (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.