Sell (and Take Your Profits!) These 3 Stocks Before They Fall

The market could reverse its course for some stocks in August. It is time to sell these inflated stocks and take profits before they fall.

| More on:
Clock pointing towards a 'sell' signal

Image source: Getty Images.

The stock market has been doing well despite the tight market environment. Three stocks jumped significantly in the last two months, and it is time to book profits. While these stocks are good investments, their inflated stock prices could fall as their fundamentals don’t support this price in a high-interest environment. 

Three stocks to sell and take your profits 

You don’t have to wait for the stock to peak to book profits. Instead of being greedy, sell these seasonal stocks before they fall. 

Air Canada 

Airline stocks have been trading high as passenger traffic increases. Air Canada (TSX:AC) stock surged a whopping 38% between May and July due to seasonal demand and hopes of returning to profits. At $24, it is a good price point to exit because even if the airline returns to profit, its $6.5 billion net debt in a high interest rate environment will maintain pressure on its margins. 

The airlines’ third-quarter earnings on August 11 could push the stock to $26, but this is an expectation. If the earnings show a weak outlook, the stock could slide faster. At present, Air Canada stock is trading at 2018 levels. For the stock price to surge, the airline has to reduce its debt. 

Air Canada’s fundamentals201820192022
Revenue$18 billion$19.1 billion$16.6 billion
Net Income$37 million$1.5 billion($1.7 billion)
Net Debt$5.2 billion$2.8 billion$7.5 billion
Free Cash Flow$1.3 billion$2.1 billion$796 million
Air Canada’s fundamentals

In 2019, AC stock surged 90% as the airline almost halved its net debt, which helped it boost its net income to $1.5 billion ($37 million in 2018). If you bought the stock below $20, now is a good time to sell at $24 and book a 20% profit. 

Many economists fear a recession is around the corner because of the inverted yield curve (the short-term interest rate is higher than the long-term interest rate). It is difficult to state when the recession will strike or whether it will strike or not. But if it does strike, Air Canada stock could plunge 30–40%. And then another three- to four-year wait period will begin before the stock returns to current levels. Sell while you are still in the money. 

Shopify stock 

Another inflated stock is Shopify (TSX:SHOP). The stock rallied 30% in May after reporting better-than-expected revenue growth of 25%. The company expects to maintain this revenue growth in the second quarter, but that does not justify its $84.60 stock price (14 times its sales per share).  

Moreover, rising interest rates might keep consumer spending low during the holiday season. And if a recession materializes, Shopify stock could fall 30–40% to $60 as it did in the March banking crisis. The stock is trading closer to its 52-week high. The $84 price is higher than its pre-pandemic highs, limiting its upside in a weak market. 

Hive stock 

Another growth stock to book profits is Hive Blockchain Technologies (TSX: HIVE). The stock is still volatile and influenced by crypto news. Hence, I suggest investing in this stock for the short-term; buying at or below $4 and selling at $8. The stock reached an $8 price point in July when Bitcoin gained momentum as Fidelity showed interest in launching a Bitcoin ETF. This $8 price is not sustainable for Hive unless we are in a crypto boom, which is unlikely with the recession looming. 

Hive can sustain an economic downturn with its Bitcoin inventory and graphic processing unit (GPU)-powered data centre. The stock has dipped to $6.60, but all is not lost. You can still book a 60–65% profit if you purchased the stock at or below $4 before it falls further. 

A stock to buy from these profits 

You can rebalance your portfolio and reinvest the profits from the above growth stocks in steady dividend stocks like BCE. BCE stock is trading near its 52-week low, which means you can lock in a higher dividend yield of 6.78%. And as the stock is oversold, there is a limited downside and more upside. 

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 Puja Tayal has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.

More on Dividend Stocks

oil and gas pipeline
Dividend Stocks

Is Enbridge Stock a Buy for its 7.6% Dividend Yield?

Enbridge stock is a TSX giant that offers investors a tasty dividend yield of 7.6%. Is this high-dividend stock a…

Read more »

Early retirement handwritten in a note
Dividend Stocks

Retire Early With These 3 Canadian Passive-Income Stocks

Three Canadian passive-income stocks are smart choices for people with early retirement goals.

Read more »

Dividend Stocks

3 Dividend Deals You Won’t Want to Miss

Given their solid underlying businesses and stable cash flows, I believe three dividends stocks would be an excellent addition to…

Read more »

A worker gives a business presentation.
Dividend Stocks

For 6% Yields, Buy These 3 TSX Stocks Now

Companies like Enbridge offer high yields and are focused on elevating their shareholders’ value by bolstering dividend distributions.

Read more »

protect, safe, trust
Dividend Stocks

How to Invest $10,000 Today for Decades of Safe Passive Income

Want to earn safe and predictable passive income? Here are some ideas on how to invest $10,000 and earn +$400…

Read more »

protect, safe, trust
Dividend Stocks

Turn $15,000 Into Your Financial Safety Net

You can turn limited capital into a financial safety net by purchasing a high-yield stock paying monthly dividends.

Read more »

Dividend Stocks

Brookfield Stock: It’s Time to Buy the Dip

Brookfield (TSX:BN) stock is getting cheap. The time has come to buy the dip!

Read more »

Dividend Stocks

How to Earn $14,000 Per Year in Tax-Free Income and Maximize Your CPP Payout

The difference between the maximum and average CPP payout is $1,094/month. To collect the maximum CPP, you need an alternate…

Read more »