The stocks in this article are all trading near their 52-week highs. This strength often reflects positive developments such as new product launches, favorable industry trends, or improved financial performance.
While momentum can be a leading indicator, it has burned many investors as it doesn’t always correlate with long-term success. All that said, here is one stock we think lives up to the hype and two that may correct.
Two Stocks to Sell:
MarineMax (HZO)
One-Month Return: +3.4%
Appropriately headquartered in Clearwater, Florida, MarineMax (NYSE: HZO) sells boats, yachts, and other marine products.
Why Do We Think HZO Will Underperform?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Earnings per share have contracted by 66.6% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
- 11× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
MarineMax is trading at $31.59 per share, or 31.7x forward P/E. Read our free research report to see why you should think twice about including HZO in your portfolio.
Transocean (RIG)
One-Month Return: +26.7%
Operating one of the world's most capable fleets of ultra-deepwater drillships and harsh environment rigs, Transocean (NYSE: RIG) operates drilling rigs that energy companies rent to drill oil and gas wells in deep ocean waters.
Why Is RIG Risky?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 4.4% annually over the last ten years
- High extraction costs and unfavorable asset economics are reflected in its low gross margin of 37.3%
- Low free cash flow margin of 4.7% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Transocean’s stock price of $7.47 implies a valuation ratio of 41x forward P/E. If you’re considering RIG for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Humana (HUM)
One-Month Return: +46.3%
With over 80% of its revenue derived from federal government contracts, Humana (NYSE: HUM) provides health insurance plans and healthcare services to approximately 17 million members, with a strong focus on Medicare Advantage plans for seniors.
Why Should You Buy HUM?
- Offerings and unique value proposition resonate with customers, as seen in its above-market 13.6% annual sales growth over the last two years
- Massive revenue base of $137.3 billion gives it meaningful leverage when negotiating reimbursement rates
- Projected revenue growth of 19.5% for the next 12 months is above its two-year trend, pointing to accelerating demand
At $308 per share, Humana trades at 29.1x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
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