Buying the dip and selling the high is a simple and effective strategy but difficult to implement. Why so? It is because most of our decisions are influenced by trending and popular things. But only those who dare to look beyond the hype and at the value make good money. While I generally talk about stocks worth buying, today, I will discuss stocks you might want to avoid in 2024.
Two stocks to avoid in 2024
When I say that you might want to avoid buying some stocks, it is not because the company or fundamentals are weak. It is because their share prices are inflated. The market hype has probably overvalued the stock. It makes no sense to buy a stock at an inflated price. Even if the stock price surges, the returns would be marginal.
Shopify stock
Shopify (TSX:SHOP) is one popular stock on the TSX. This e-commerce giant once went head-to-head with Amazon and has established its place as a worthy player. While the secular trend of e-commerce continues, its growth has normalized post-pandemic. From jumping hoops to treading gradually, Shopify’s revenue growth has normalized from more than 70% before 2018 to 20-25% in 2022-2023.
Initially, Shopify’s focus was on scaling the business. But now its focus is on becoming profitable and sustaining those profits. It made its first profit during the pandemic in 2020 and 2021. Then came the tech meltdown. Shopify had to sell its logistics business to maintain an asset-light model. In 2023, it returned to profitability with $132 million in net profit.
The prolonged high interest rates could weaken the economy and push Shopify stock into a correction. The stock is trading at 14 times its sales per share and 765 times its earnings per share. That is an expensive price to pay for a stock with moderating growth.
Moreover, Shopify has no magic spell to boost its revenue or profit. Even the e-commerce giant Amazon is banking on its cloud business for growth. While Shopify is a good stock with improving fundamentals, a $100 price tag is too much for the stock. If you purchased Shopify shares at the dip, it is a good time to sell them and book profits than to buy them at an inflated price.
Suncor Energy stock
On similar lines are Suncor Energy (TSX:SU) shares. The integrated oil company extracts, refines and sells oil. As the oil price is determined by the market forces of demand and supply, the company’s stock price fluctuates with the oil price. Suncor share is trading closer to its cyclical high of $47. The highest it can go is $50, that too if the oil price once again reaches US$100/barrel.
While Suncor is a good stock and has held the $45-$48 price range for quite a long time, this price is unsustainable. Many oil companies are expecting oil prices to normalize in 2024 and 2025. A lower oil price could put a stop to the windfall gains of oil companies and pull down the stock price from its cyclical high.
There is more downside than upside for this stock. Hence, I suggest avoiding this stock in 2024, as it could be a year of correction. If you hold Shopify shares, you could consider selling at $47 and booking a profit. You can later buy it when the share price falls below $40.
What can investors do?
Instead of buying shares at their highs, seek those that are undervalued. The golden rule of investing is to sell when others are buying. There is buying momentum in the above two stocks. It’s time to sell them and buy stocks others are selling, like BCE (TSX:BCE), which is trading at a 52-week low. Investors are in selling mode after the telco gave a weak outlook for 2024, as it undergoes restructuring. It expects net profits to fall as it lays off 9% of its workforce and closes several radio stations and Source stores. Instead, it is investing in digitization and the cloud. Now is the time to buy BCE shares.
