Buy low, sell high.
That’s what we’ve heard pretty much since grade school when it comes to investing. Granted, I had no idea what it meant, at the time, but even today it can be hard to gauge when it’s the right time to sell a stock.
To be honest, there are a few stocks out there where it should pretty much be a no-brainer that investors who got in low should be selling now. That seems to be the case to me for Shopify Inc. (TSX:SHOP)(NYSE:SHOP) and Emera Incorporated (TSX:EMA).
I’m not going to lie: it’s been a lot of fun watching this stock soar in the last year. After a summer slump, the stock has rebounded dramatically to trade around $370 per share for a couple of weeks now.
But analysts aren’t so sure that investors are taking into consideration that while this stock has an incredibly strong future, share price estimates are well below the current trading price. Fair value places Shopify closer to $230 per share, a steep drop of 38%, and some analysts believe that the stock could drop even lower to $200 or even $150 per share in the next year.
Part of this is that some of the excitement surrounding Shopify is directly connected to a red flag: profits. The company is putting a lot into research and development and expansion, making it a long process toward profits. Granted, revenue and earnings are continuously growing, but it’ll still be awhile before the company has profits to show for themselves.
Now of course, I wouldn’t write off Shopify completely; I just think that now is the time to sell. Then wait for that drop to come and when it does, buy into Shopify again and hold on, as analysts still view this stock as potentially turning into the next Amazon.
Another stock that’s been riding a high in the last year is Emera. After trading around $40 per share back in September, the company has shot up to $51.53 per share at writing, an increase of 29% in just eight months.
Similar to Shopify, this company has transitioned into a period of greater growth opportunities after making some high returns, mostly in the United States. Its acquisitions have created some major growth in a short time, which should continue. This is both good and bad thing for investors. If you want to hold onto this stock for years, that’s great. But in the short term, this stock could dip as it sells 20%-30% of assets to fund its aggressive investment plan.
So while sales continue to rise and revenue continues to come in, there still might be a period during which shares seem to slump as the company continues with this growth plan. That’s why right now, while trading at an all-time high, it might be best to sell.
But again, this is a strong stock and one I would pay attention to. And if you’re in it for the long haul, Emera definitely has a strong future ahead that will likely see share prices jump as these acquisitions are made. But if you’ve made your money and are ready to sell, I’d say that now is definitely the time.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. David Gardner owns shares of Amazon. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Amazon, Shopify, and Shopify. Shopify is a recommendation of Stock Advisor Canada.