Two months ago, I preached the gospel of “let your winners run”, advising investors to resist cashing in on soaring stocks that seemed precariously overvalued. A tactic that, while potentially impeding short-term gains, can provide a boon to your overall portfolio. While I remain staunch in my support of this strategy, financial wisdom dictates the occasional need for a change of pace.
As a buy-and-hold enthusiast, I’ve weathered the storms of languishing stocks (don’t get me started on my Warner Bro Discovery (NASDAQ: WBD) investment) while reveling in the triumphs of heavy hitters like Exxon Mobil (NYSE: XOM) (drill, baby, drill!). I believe that the winners in my portfolio will more than compensate for the inevitable losers.
Yet, some investors prefer to tread the cautious path, safeguarding their gains by shedding stocks at their zenith. This preemptive move doesn’t signify ill will towards the companies in question, but rather a practical move to secure profits. While not the most strategic approach, it certainly has its merits.
With that said, let’s delve into three companies that have recently hit their 52-week highs and may be teetering on the edge of a downturn.
Caterpillar (CAT)
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Caterpillar (NYSE: CAT) is a stalwart among stocks, but its recent surge to a 52-week high has sparked concerns. While not a company to be scoffed at, it operates in cyclical markets and faces a myriad of challenges. This is a stock that typically thrives in the long-term, but some may find merit in cashing out before the storm hits.
Amidst tailwinds such as the $1.2 trillion infrastructure bill and a robust U.S. housing market, Caterpillar navigates choppy waters with global commodity market fluctuations, potential interest rate freezes exacerbating costs, and fierce overseas competition chipping away at its profitability.
Despite a price hike in its latest quarter, propelling sales to $17.1 billion, a decline in sales volumes and minimal growth forecasted this year spell a less rosy picture. With earnings stagnating and sales projections underwhelming, the cyclical nature of CAT’s stock might be playing out at these unprecedented heights.
DoorDash (DASH)
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DoorDash (NASDAQ: DASH) reigns supreme in the third-party delivery realm with a commanding 67% market share, overshadowing Uber Technologies (NYSE: UBER) and its mere 23% slice with Uber Eats. As the industry consolidates into a duopoly between DoorDash and Uber, the former seems poised to maintain its dominance.
The pandemic-induced surge in delivery services has started to wane as normal dining patterns resume. Major restaurant chains are witnessing a resurgence in foot traffic, with geolocation data from Placer.ai affirming the trend. The likes of Darden Restaurants (NYSE: DRI) and Panera Bread are experiencing renewed vitality, contrasting the narrative for delivery platforms like DoorDash.
Furthermore, evolving regulations within the gig economy threaten DoorDash’s cost structure, with potential reclassification of Dashers as employees ushering in higher costs and shrinking profit margins. At nearly 100 times next year’s earnings, trading at 6x sales and 41x free cash flow (FCF), DoorDash bears lofty valuations even for an industry leader. Should these metrics be a crystal ball, a reckoning for DoorDash’s stock may be on the horizon.
Harley-Davidson (HOG)
Harley-Davidson’s Uphill Battle in the Motorcycle Market
Challenges for the Iconic Manufacturer
Harley-Davidson, the legendary motorcycle manufacturer, is facing a tough road ahead. With an aging rider base, a pivot towards electric motorcycles, and increasing competition, the company is encountering formidable headwinds that have been building over the years.
Market Dynamics and Competition
Once a dominant player in the heavyweight motorcycle market, Harley-Davidson has seen its market share decline significantly, dropping from 44% in 2021 to below 38% in the past year. Competitors like Polaris Industries, the owner of Indian Motorcycle, are gaining ground, with about 11% of the market currently under its saddle.
Financial Performance
Although Harley-Davidson saw a 1% increase in revenue in 2023, the drop in motorcycle sales by 9% and operating profits by 14% has raised concerns. Particularly in the U.S., its largest market, Harley experienced a significant 10% decrease in sales. As we head into the warmer months, traditionally a strong period for Harley, there might be a temporary upswing in sales.
The Electric Conundrum
Harley’s venture into electric motorcycles hasn’t been the saving grace anticipated. Even after spinning off LiveWire Group into a separate publicly traded entity, Harley maintains a significant 74% ownership. The leadership crossover, with Harley executives serving on LiveWire’s board, underscores the tight integration between the two entities. However, LiveWire’s performance has been lackluster, with a 18% downturn in revenue in 2023 and sales of just 660 e-bikes, a far cry from the initially projected numbers.
Investment Perspective
Despite the stock hitting a new high, investors might want to approach with caution. While the stock may appear attractively valued based on multiples, the current peak could mark the optimal time to consider divesting from the motorcycle manufacturer.
On the date of publication, Rich Duprey held a LONG position in WBA, XOM and PII stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
