2 Overbought Stocks That Could Plunge at Any Moment!

AltaGas Canada stock and Toromont Industries stock are advancing. Some view both as overbought stocks. The prices could either go up or down.

| More on:
falling red arrow and lifting

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

There are instances in the stock market where buying pressure feeds on stocks. When a bullish sentiment or trend is developing, you will notice the upward movement of the stock price. If the upward pressure persists, traders warn of an overbought stock.

The term overbought refers to stocks whose prices have gone up beyond what is reasonable. Likewise, the short-term or recent movement indicates that the stock is trading above its intrinsic value. Thus, traders anticipate a price correction or a downward price reversal.

AltaGas Canada (TSX:ACI) and Toromont (TSX:TIH) are displaying signs of overbought stocks. The prices of both stocks could plunge, so you might want to hold off investing in them.

Peaking stock

AltaGas Canada has been on a tear lately. The share price of this $1 billion natural gas distribution utility company has been climbing since October 18, 2019. Its price was $25.50 before rising by 30% to $33.15 on the following trading day.

The price then rose in each of the following eight trading days to close at $33.52 on October 31, 2019. On the first trading day of November, however, the price slid to $33.49. The growing number of consecutive days of a stock price moving in the same direction is also indicative of an overbought stock.

On a year-to-date basis, AltaGas Canada is up 114% year to date. Shareholders should be happy with the price appreciation in addition to the 3.1% dividend. We’ll see in the next trading sessions if the price has gone up too far and if a price pullback is imminent.

The price could hold as the renewable energy and utility segments of AltaGas Canada are rate-regulated services that generate stable cash flows.

Surging stock

Toromont is a well-known dealer of Caterpillar heavy equipment. This $5.57 billion company is the provider of specialized capital equipment and operating in two business segments — Equipment Group and CIMCO. Its primary clients are in Canada and the U.S., although the company services other international markets.

Of late, the stock has been moving very much like AltaGas Canada. On October 18, 2019, the stock was trading at $65.02. The price rose by 0.87% on the next trading day. The price increased in each of the nine succeeding trading sessions culminating on November 1, 2019.

Unlike AltaGas, Toromont’s increase continued past the end of October. Let’s wait for the next trading week to see if the stock can sustain its upward momentum. The signs of an overbought stock are clear.

Again, shareholders should be happy with the price appreciation plus the 1.6% dividend yield. So far this year, Toromont is up 27.5% year to date. The price might be going up because growth estimates this year and the next are favourable. The company expects 11.9% and 13% growth in 2019 and 2020, respectively.

Price forecasts

Instead of looking at the high estimates of analysts, it’s interesting to find out the low estimates. AltaGas could drop to a low of $25 while Toromont could slide to $64. Still, these are estimates with a 50/50 chance of occurring.

AltaGas Canada and Toromont have been performing creditably in 2019. Both companies might be showing their true worth contrary to the description of overbought stocks.

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 Christopher Liew has no position in any of the stocks mentioned.

More on Dividend Stocks

Dividend Stocks

TFSA Passive Income: 3 Undervalued, High-Yield TSX Dividend Stocks to Buy Now

These top TSX dividend stocks with high yields now look attractive to buy for TFSA passive income.

Read more »

Electricity high voltage pole and sky
Dividend Stocks

2 High-Dividend TSX Utilities Stocks to Buy Today

The TSX utility sector has some great high-yield stocks to buy.

Read more »

Retirement plan
Dividend Stocks

Retirement Planning: Now Is the Time to Buy Dividend Stocks

2022 could be a great time to buy quality dividend stocks at attractive discounts. Prioritize your capital allocation now.

Read more »

Payday ringed on a calendar
Dividend Stocks

How to Convert $500 Monthly Investment Into $200 Monthly Income

If you want the stock market to give you regular monthly income, you have to invest in the stock market…

Read more »

worry concern
Dividend Stocks

3 Ultra-Safe Dividend Stocks for Jittery Investors

Motley Fool investors nervous about the market downturn should consider these ultra-safe dividend stocks that keep paying passive income no…

Read more »

House Key And Keychain On Wooden Table
Dividend Stocks

Is the Real Estate Boom Finally at an End?

It might be hard to believe, but Canada’s decades-long housing boom might be at an end.

Read more »

Caution, careful
Dividend Stocks

3 Mistakes to Avoid When Investing in a Recession

Avoid making these crucial investing mistakes during market downturns to protect your investment portfolio.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

2 Dividend ETFs for Easy Passive Income

Canadians can earn generous passive income the easy way from two dividend ETFs with monthly payouts.

Read more »