Three Overpriced Stocks to Watch for a Market Crash
The stock market is soaring to new heights, but some insiders are cashing out. Is this a sign of an impending recession?
I can’t say for sure.
But what I can say is this: there are many excellent companies that I would love to own, but they are too expensive right now. They need a market correction to become attractive.
That’s why I want to share with you three overpriced stocks that I have on my radar. These are stocks that I would buy if they drop significantly.
- Amphenol Corporation ($APH)
Amphenol Corporation is a hidden gem in the tech sector. It makes cable connectors, wireless transmitters, and antenna receivers. These are essential parts for cars, cellphones, military aircraft, satellites, and more.
This company has always traded at a reasonable price to earnings ratio, similar to the market average.
But, its shares have surged lately because of the hype around AI.
Amphenol Corporation now trades at a price to earnings ratio of 32.69 and pays a meager 0.82% dividend.
I think this is too expensive, considering that the stock had a much lower price to earnings ratio for most of 2023 and paid a higher dividend of around 1.12%.
Amphenol has outperformed the S&P 500 for the past decade.
This is a fantastic company that is currently overvalued. Keep an eye on this one in case of a price correction.
- Packaging Corporation Of America ($PKG)
Some of the best stocks are the ones that most people ignore.
And Packaging Corporation Of America is one of them.
This is a company that makes boxes and containers for retail products. You know, the colorful packaging that you see in the supermarket.
Packaging Corporation Of America has been a consistent market-beater, and the stock usually pays a generous dividend yield. Plus, the company has a low valuation, with a price to earnings ratio of around 12–14.
But, in the last 12 months, the shares have jumped 26.55%.
The company now trades at a price to earnings ratio of 19.86 and pays a 2.85% dividend. This is not too bad, but it is risky, because the demand for boxes and packaging depends on the health of the economy.
Packaging Corporation Of America is still a decent buy right now.
But, a lower price would make it a much better deal.
- United States Lime & Minerals ($USLM)
United States Lime & Minerals is a boring but profitable business. It operates quarries and mines that produce lime and limestone products.
These products are used for various purposes, such as construction, agriculture, and environmental protection.
This business has a huge competitive advantage, as Peter Lynch, the legendary investor, explained:
What makes a rock pit valuable is that nobody else can compete with it. The nearest rival owner from two towns over isn’t going to haul his rocks into your territory because the trucking bills would eat up all his profit. No matter how good the rocks are in Chicago, no Chicago rock-pit owner can ever invade your territory in Brooklyn or Detroit.
United States Lime & Minerals is a stock that few analysts and investors follow.
But, the company has beaten the S&P 500 over the long run, with a 10-year average annual total return of 17.70%. Moreover, United States Lime & Minerals has a relatively low price to earnings ratio of 19.51.
This is not a very expensive stock, but it has risen 58.63% in the past year.
And, some of the company’s numbers are not very impressive…
United States Lime & Minerals is an obscure business, so it has a low trading volume. And, the company pays a paltry 0.39% dividend. There are other businesses with strong moats, like CME Group and Nasdaq, Inc., that have achieved similar long-term returns while paying higher dividends and being more liquid.
United States Lime & Minerals is still a great, market-beating business. But, it could be cheaper.
Conclusion
The stock market is unpredictable, and no one knows when the next crash will happen. But, we can prepare ourselves by watching some of the best companies that are currently overpriced.
These are stocks that have proven themselves over time, but they are too expensive to buy right now. They need a market correction to become attractive.
Amphenol Corporation, Packaging Corporation Of America, and United States Lime & Minerals are three examples of such stocks. They are excellent businesses that have outperformed the market, but they are trading at premium valuations.
I have these stocks on my watchlist, and I will buy them if they drop significantly.
What about you? Do you have any overpriced stocks that you are waiting for a market crash to buy? Let me know in the comments below.
Disclaimer
The content on this blog is for informational and entertainment purposes only and is not intended to provide financial advice or investment recommendations.