The markets have been range-bound throughout the year as the aggressive interest rate hike by the central bank slowed economic growth. Many companies and individuals felt the impact of higher interest rates as their debt became expensive. However, a few companies benefitted from the cyclical upturn and demand recovery. But given the slowdown in economic growth, their stock prices might be a little too expensive. Their current growth could reverse if the economy falls into a recession.
Two stocks that are a little too expensive
Oil and tech stocks surged to levels at which they have become too expensive to buy. Instead of buying these stocks at their highs, you could consider selling them and making a profit.
Crescent Point Energy stock
Oil stocks have had a gala time since the Russia-Ukraine war altered the supply chain for the long term. And now Saudi Arabia and Russia are keeping oil supply tight to keep prices elevated in the US$80–US$100 range. Crescent Point Energy (TSX:CPG) is benefitting from this upcycle.
However, oil is a decelerating energy source as major developed economies push for green energy alternatives to reduce carbon emissions. The International Energy Agency expects oil consumption in transportation fuels to decline after 2026 thanks to the increasing adoption of electric vehicles and biofuels.
Even at its 52-week high, Crescent Point Energy’s stock price trades 75% below the 2014 levels of over $45 because of the oil crisis. This shows the decelerating nature of oil stocks. Crescent Point stock is unlikely to reach its post-pandemic high of over $13 as it is priced at US$125 oil per barrel. CPG is a cyclical stock whose upper limit is limited.
Investors would be better to avoid buying Crescent Point stock at current prices, even for dividends. Management could cut dividends if oil prices fall significantly. A recession could pull down oil prices rapidly with no recovery to its current levels until another supply shock.
BlackBerry stock
BlackBerry (TSX:BB) stock is trading on the upper side of its $4.5–$8 range. The cybersecurity company has several headwinds before its ultimate tailwinds of autonomous cars, artificial intelligence-led security, and the Internet of Things (IoT) unfurls. The IOT software maker is seeing delays in government cybersecurity contracts, which is hurting its revenue. The company even reduced its second-quarter cybersecurity revenue to $80 million.
| BlackBerry | Q2 FY23 | Q3 FY23 | Q4 FY 23 | Q1 FY24 | Q2 FY24 |
| Cybersecurity Revenue (million) | $111 | $106 | $88 | $93 | $80 |
| IoT Revenue (million) | $51 | $51 | $53 | $45 | $49 |
And with the economic slowdown, car sales would remain weak, delaying the realization of the pending QNX royalty of $640 million. Despite these headwinds, BlackBerry has the potential to turn around because of its technology, which is trusted by governments worldwide.
However, the stock is overvalued for the current economic conditions. It is trading at 4 times its sales per share despite declining revenue. The high share price comes as BlackBerry has reportedly received an acquisition offer from Veritas Capital, which acquires technology firms catering to governments, especially national security. If the acquisition news is true, BlackBerry stock’s upside will be limited to the price the acquirer offers.
BlackBerry did hire investment bankers to look for opportunities to unlock value. But an acquisition was unexpected. If the acquisition news is false or the deal is cancelled BlackBerry stock could fall significantly. That would be a good entry point to invest in BlackBerry.
Investing tip
The above two stocks are trading closer to their highs, which may not be sustainable in a weak economy. Instead of buying them while they are expensive, you could shift your focus to value stocks with long-term growth potential, trading near their lows due to short-term headwinds.
In a volatile market, BCE stock is a buy at the dip as you can lock in a higher dividend yield of 6.99%.
