Top Stocks I’d Sell in December

Shopify Inc. (TSX:SHOP)(NYSE:SHOP) and another stock to take profits from before year-end.

| More on:
Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept

Image source: Getty Images

Two main instances should entice an investor to sell their shares: either a stock has grown too expensive and is no longer a great value even to hold, or a fundamental thesis has deteriorated over time due to unfavourable industry conditions.

This article will look at one firm being slowed down by industry headwinds (due to the rise of tech-driven disruption) and one tailwind-riding innovator that’s gotten way too expensive. All three names, I believe, could put investors at risk of substantial depreciation over the next year.

IGM Financial

IGM Financial (TSX:IGM) is one of the top non-bank wealth managers in the country, with over $160 billion in assets under management (AUM) as of the end of the first quarter of 2019.

The company is behind popular brand names such as IG Wealth Management and Mackenzie Investments, both of which are renowned brands.

With the rise of do-it-yourself (DIY) investing and a reluctance to invest in actively-managed mutual funds with high management expense ratios (MERs), the road ahead could be a tough one for IGM in spite of the recent operational improvements and a more promising strategy to offset said industry headwinds.

ETF offerings, which are growing in popularity relative to mutual funds, and a focus on higher-net-worth clients will offset some of the pressures facing the non-bank-affiliated asset managers.

Ultimately, however, I do believe that the headwinds will be too insurmountable and will continue to make it tough for the firm to increase its AUM by a meaningful amount over time without taking a hit to its gross margins.

IGM has a stable 5.8% dividend yield, but with lacklustre growth expectations in a very rough industry, the stock ought to be avoided at 12.6 times trailing earnings.

Shopify

On the other side of the spectrum, we have a technological disruptor that made a tonne of noise in recent years. Shopify (TSX:SHOP)(NYSE:SHOP) is an incredible business and is arguably the best investment opportunity to arise out of the TSX over the last decade.

It’s been a heck of a run. The stock has gone from expensive to very expensive to stupidly expensive to just plain ridiculous. While there’s no question that Shopify is worthy of a premium multiple given its hot industry, its exceptional management team, and the tremendous progress it’s made over the past year, one should always consider the price they’ll pay because, in the end, it doesn’t matter if you’re buying the best company in the world if you end up overpaying.

Shopify is still in the early innings of its growth story. It has an opportunity to re-accelerate its growth and get on the highway to sustained profitability through its slate of ever-improving add-on offerings.

There’s a lot of excitement on the name heading into year-end as the stock looks to break out, which is precisely why the stock is dangerous at these levels.

The stock trades at nearly 30 times sales, making it one of the most expensive stocks I’ve ever run across. The growth trajectory is certainly encouraging, but if you’re paying for a few years’ worth of growth upfront, you’re probably not going to be happy with your returns, and you’re putting yourself at risk of losing big money in the event of a correction.

As such, I’d urge investors to at least wait for the name to trade closer toward its three-year historical mean levels before initiating a sizeable position.

Stay hungry. Stay Foolish.

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 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 and Shopify. Shopify is a recommendation of Stock Advisor Canada.

More on Investing

stock analysis
Investing

Buy the Dip: 2 Stocks to Buy Today and Hold for the Next 5 Years

These Canadian stocks are trading at discounted valuations, providing an opportunity for buying the dip.

Read more »

bulb idea thinking
Investing

Safety in Size? 2 of the Bluest Blue-Chip Stocks I’d Buy Now

TC Energy (TSX:TRP) and another cash cow have huge dividend yields for safe investors.

Read more »

A cannabis plant grows.
Cannabis Stocks

Can Aurora Cannabis Stock Recover in 2024?

Aurora Cannabis stock is down 99% from all-time highs but remains a high-risk bet, despite its cheap valuation.

Read more »

Question marks in a pile
Dividend Stocks

Where Will Brookfield Infrastructure Partners Stock Be in 5 Years?

Brookfield Infrastructure Partners (TSX:BIP.UN) kicked off 2024 with a bang. Where will it be in five years?

Read more »

TFSA and coins
Investing

TFSA Investors: 3 Incredible Stocks for 2024

Are you looking for stocks to buy and hold for years for your TFSA? These three stocks could deliver exceptional…

Read more »

A person looks at data on a screen
Stocks for Beginners

3 Warren Buffett Stocks to Hold Forever

Warren Buffett sold some shares in Apple (NASDAQ:AAPL), and the market had questions.

Read more »

Retirement
Dividend Stocks

Golden Years Gain: Your CPP Benefits at Age 70

CPP users delaying pension payments until 70 will receive substantial monthly income streams in the golden years.

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Dividend Stocks

3 Dividend Stocks You Can Safely Hold for Decades

Top TSX dividend stocks are on sale.

Read more »