Knowing when to sell a stock is just as important as knowing when to buy it. And when shares become overbought, that’s one way investors can flag stocks that have risen sharply in value and that could be too expensive today. Below are three stocks that fit that criteria and that investors might want to consider selling today.
Dollarama (TSX:DOL) has seen a strong recovery in its share price this year, rising more than 50% since the start of the year. Entering trading on Tuesday, the stock was just a few dollars away from its 52-week high and its Relative Strength Index (RSI) had climbed to over 70. RSI looks to a stock’s gains and losses over the past 14 trading days, and when the gains heavily outweigh the losses, the higher the RSI number becomes. Once it’s over 70, that’s when it is said to be overbought.
And so, despite the stock’s strong rally, Dollarama may have risen a bit more than we would have expected, especially given the company still didn’t have that good of a quarter. There are still some questions around its growth and whether it’s the fast-growing stock we once knew it to be. It leads me to believe that it’s the momentum and technical performance of the share price that’s leading it further up in value, and I wouldn’t expect that to be sustainable.
Newmont Goldcorp (TSX:NGT)(NYSE:NEM) has also climbed into overbought territory, although by Monday’s close it was down slightly to an RSI of 69. However, it’s still right around that mark, and the newly merged company has been climbing in value since May, rising more than 22%. A big part of the reason behind that could be all the geopolitical concerns in the markets today and the possibility of interest rates increasing.
The problem is that gold and gold stocks are often not the solution, as there are often many factors impacting gold prices. I have also not observed any such pattern that global conflict will result in much more bullish conditions for the commodity and these types of stocks. And so despite the rally, any further increases in share value could suggestive of a stock that may have become a bit too expensive. I wouldn’t expect gold prices to rise much higher than they are now, and the same goes for Newmont stock.
Brookfield Renewable Partners (TSX:BEP.UN)(NYSE:BEP) is right around its 52-week high for the year, as it has risen more than 30% to start the year. However, that has also put the stock at an RSI of 75 and well into overbought territory. The stock isn’t just at year-long high; it’s the highest it’s ever been.
With the company’s financial results being inconsistent at best over the past four quarters, with two periods landing in the red, it doesn’t appear that the stock warrants trading at such a high level. Sales growth of just 4% in its most recent quarterly surely doesn’t indicate that the stock is a much better buy than it has been in the past.
As a result, investors that have earned a good return on Brookfield this year might want to consider cashing in those gains, because if the company has a disappointing quarter, it could eat into some of those profits.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor David Jagielski has no position in any of the stocks mentioned. Brookfield Renewable Partners is a recommendation of Dividend Investor Canada.