пятница, 29 мая 2020 г.
Overvalued: 2 TSX Stocks I’d Sell Now Before a Pullback
Timor Invest
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Some of the more coronavirus-resilient stocks have endured impressive runs since the crash. As most stocks crumbled, they surged above and beyond their all-time highs. The resilience of such businesses is admirable, making their stocks worthy of a premium. But I do think that investors need to consider selling some of their frothier holdings.
It may seem ‘safe’ to overweight your portfolio in the defensive areas of the market. But I believe many investors may be at risk of overpaying for stocks that could be at risk of selling off violently on positive news relating to a vaccine.
And no matter how long the pandemic drags on, the most defensive play in the world is not safe if it’s overbought and overvalued.
Consider selling the following three overvalued stocks. I’ve pounded the table about all three in the past, at or around their all-time highs.
Jamieson Wellness: A wonderful business with an overbought stock
Jamieson Wellness (TSX:JWEL) is a wonderful defensive business that I’ve always been bullish on in the past. This is the first time I’ve become a bear on the name. This is not because there’s anything wrong with the business or its positioning in this pandemic. Rather it’s because the valuation on shares has gotten a bit too stretched for my liking.
Jamieson is benefiting from the secular health trend, and has a portfolio of products that’s never been stronger. I’m reluctant to continue recommending the name after the recent 32% bounce off its March lows.
At the time of writing, JWEL stock trades at 29.6 times next year’s expected earnings and 44.2 times cash flow. While I’m a firm believer that it’s okay to pay up for quality, one has to draw the line somewhere. I think JWEL has passed this line after its incredible surge to new heights.
I view the overvalued stock as overdue for a pullback and would urge investors to reconsider the name should it fall below $28 or so.
Shopify: A white-hot stock that looks severely overvalued
Shopify (TSX:SHOP)(NYSE:SHOP) keeps defying the laws of gravity. It’s one of the hottest stocks on the planet, and it’s one of the few firms that’s actually seen off-the-charts growth amid the coronavirus crisis. The stock has rocketed 160% from its March lows. Now it’s at high risk of plunging below $1,000, as shares of the e-commerce kingpin look to take a much-needed breather.
Shopify has demonstrated resilience in the face of a severe recession, and the business fundamentals have never looked better. Still, with the share price at over 54 times sales, prudent investors should consider taking a bit of profit off the table. Shares could be in danger of reverting toward their mean valuation levels.
Fellow Fool contributor Mat Litalien recently warned that Shopify is overbought, overvalued, and overdue for another one its vicious crashes, and I think investors would be wise to heed his warning. Waiting for a significant dip before initiating a full position.
“Historically, the company has been highly volatile and drops of 20% or more are not unheard of. Now that the company sports a 14-day RSI of 74.78, Shopify may be due for one of its pullbacks.” said Litalien. “A company doesn’t stay in overbought status for long – eventually there will be downward pressure. For Shopify, sustained downward pressure usually results in double-digit losses. This is especially true given that Shopify’s current price leaves little margin of safety.”
If you’re looking for a stock to buy, here’s a name that’s worth checking out.
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Fool contributor Joey Frenette has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify.
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Royal Bank of Canada (TSX:RY) Just Soared 12% — Time to Back up the Truck?
Timor Invest
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Don’t look now, but Royal Bank of Canada (TSX:RY)(NYSE:RY) surged over 12% in just around two trading sessions around the bank’s second-quarter earnings results.
The Q2 results themselves were really nothing to write home about. Royal Bank’s results weren’t exceptional by any means. Profits were cut in half (EPS was down 54% YoY), while provisions for credit losses rose substantially.
However, it seems investors thought Royal Bank ‘s crummy quarter was a lot better than the prediction of many bears. A lack of significant surprises was all that was needed to move the needle. The oversold name has arguably exhibited the most resilience relative to its peers over the past year.
Peak provisions may be in the rear-view mirror (as well as unsurprising second-quarter results for many of Royal Bank’s peers). As such, most of the pessimism about Canadian banks may already be past. The stage could be set for a substantial relief rally toward mean valuations.
Royal Bank stock still a top “catch-up” trade
I have often pounded the table on the Canadian banks, urging investors to “lock in” their higher yields. I’ve also had a strong preference for quality names, like Royal Bank, that are best-equipped to deal with the recession. I also urged investors who missed out on the April-May market rebound to consider the banks as a “catch-up” trade that I thought would mirror the market bounce with a few month’s worth of lag.
Banks are now looking to get back on the EPS growth track. This follows significant damage control amid the perfect storm of challenges created by COVID-19 and the Canadian credit downturn. I think there is compelling upside, especially with Royal Bank stock, heading into year-end.
Royal Bank of Canada rips the Q2 band-aid off
Royal Bank saw weakness across the board in Q2, with PCLs up 564% YoY, Canadian P&C earnings down 56% YoY, capital markets earnings down 86% YoY, and wealth management earnings down 28% YoY.
The latter two segments, I believe, will keep Royal Bank stock afloat through the duration of this recession. As such, investors who want to bet on banks but limit their downside if this recession proves to be more severe, ought to put Royal Bank at the top of their list.
At the time of writing, RY stock trades at a modest 1.6 times book, which is considerably lower than the stock’s five-year historical average price-to-book (P/B) multiple of 2. Other traditional valuation metrics are also depressed, but given the profound disruption caused by COVID-19, my preferred metric of choice is the P/B ratio.
Royal Bank stock has led the latest upward charge for the banks. After an unremarkable quarter, I think fear about Canada’s banks could quickly turn to optimism. They could be on a sustained rally much higher in spite of the COVID-19-related uncertainties that are still out there.
Foolish takeaway
The second quarter was nasty, but it wasn’t as unpleasant as some of the biggest bears on the Street had feared. The Q2 band-aid has been ripped off for Royal Bank, and I think the road to recovery may be coming a lot sooner than most think.
So, if you’re a long-term investor looking to get more yield (shares currently sport a 4.7% yield) for less, it makes sense to buy Royal Bank stock, or any of its peers, at today’s depressed valuations.
Stay hungry. Stay Foolish.
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Fool contributor Joey Frenette has no position in any of the stocks mentioned.
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Coinbase Now Supports Tezos Staking Rewards for UK and Some EU Users
Timor Invest
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Major cryptocurrency exchange Coinbase is rolling out Tezos (XTZ) staking rewards for users in the United Kingdom and three European countries.
In an announcement on May 28, the exchange revealed that users in the U.K., France, Spain and the Netherlands are now eligible to earn interest on their XTZ holdings for depositing and holding the token on the exchange.
According to Coinbase, since this feature was launched in the United States back in November, users have earned over $2 million in XTZ staking rewards.
What is staking?
In blockchains that use a Proof-of-Stake system, staking enables network participants to earn a form of “interest” on their holdings, as long as they are willing to lock up their funds to help maintain the operations of the network.
The system works because, as opposed to Proof-of-Work systems such as Bitcoin (BTC), nodes in a PoS network are engaged in validating blocks, rather than mining them.
Validators for each block on the network are selected, algorithmically, on the basis of the number of tokens a given node has staked in their wallet — i.e. deposited as collateral in order to compete to add the next block to the chain.
Token holders can either use a delegated staking service or actively participate in staking their tokens themselves — or, as in the service offered by Coinbase, use an integrated staking feature on a cryptocurrency exchange.
Staking holdings can yield significant percentage returns, depending on the size of the participant’s stake: Coinbase indicates that the current estimated annual return for Tezos staking on the exchange is around 5%.
Staking services, both retail and institutional
Coinbase also supports staking for global investors that use its institutional asset custody arm, Coinbase Custody.
On the retail end, major exchanges such as Binance have chosen to launch dedicated staking platforms rather than integrating the feature like Coinbase.
Some in the crypto community have in the past criticized the increasing prevalence of centralized staking services operated by leading industry players, as well as pointing to other potential drawbacks of the Staking-as-a-Service business model.
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