The S&P 500 (SNPINDEX: ^GSPC) is hovering near a record high, but the large-cap index’s lofty valuation could limit its upside potential from here. It currently has a Shiller Cyclically Adjusted Price-to-Earnings (CAPE) ratio of 41.8. That makes this the second-most-expensive market in history, behind only the peak of the dot-com bubble in 1999 and 2000.
A number of catalysts could derail this euphoric bull market, including the conflicts in the Middle East, high inflation, Federal Reserve interest rate hikes, and the midterm Congressional elections in November. Therefore, this might be a good time for investors to take some money off the table.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Stocks with high valuations tend to be the most vulnerable to sharp corrections when there is turmoil in the broader market, because investors start to question whether the underlying companies can grow as quickly as optimists had previously hoped they would. I’ve identified two stocks trading at sky-high valuations that might be worth selling if the S&P 500 starts to head lower.
The first stock to sell: SpaceX
Space Exploration Technologies (NASDAQ: SPCX) was founded by Elon Musk in 2002, with an initial goal to reduce the costs of launching payloads into space. It continues to make significant progress on that front, and it has also built highly lucrative satellite internet connectivity and artificial intelligence (AI) infrastructure businesses.
SpaceX uses its Falcon 9 and Falcon Heavy reusable rockets to blast around 2,500 tons of payloads into orbit each year on behalf of businesses and government agencies. The company’s new Starship rocket, which has a significantly greater capacity than the Falcon series, is expected to enter commercial service next year.
SpaceX has also used its rockets to launch more than 10,000 of its own Starlink satellites into orbit, where they currently provide internet access to 12 million paying customers here on Earth. This business accounts for most of the company’s revenue right now, and management estimates that satellite connectivity could be a $1.6 trillion addressable market.
However, SpaceX’s most valuable opportunity might be in AI, where management has identified $26.5 trillion worth of opportunities across infrastructure, consumer subscriptions, and enterprise applications. This is currently the company’s fastest-growing business, and it could overtake the satellite connectivity segment in terms of revenue by the end of 2026.
