Is it Time to Take Profits?

Stocks have been on a historic run. Recently, the Dow, Nasdaq, and S&P 500 all hit their all-time highs. But as you know, what comes up will eventually come down. And stocks have continued to exhibit volatility. As the calendar turns to October, it may be time for you to consider trading some stocks that you might feel convicted about in the long run. Knowing when to take profits is one of the keys to investing success. One rule of thumb is to look for stocks that have climbed over 20%. Despite the ups and downs of 2019, many stocks fit this metric. With that in mind, here are three stocks that look like they may have reached a top.

Disney looks ready to take a breather after a big year

The first stock, I want to discuss is the Walt Disney Company NYSE: DIS. The House of Mouse has a lot of things going for it. It’s preparing to launch its own streaming service, Disney+. After a shaky initial launch of their highly anticipated Galaxy Edge Star Wars Land at Disneyland in Anaheim, the company saw much better results at Walt Disney World’s Hollywood Studios. Disney theme parks continue to be a cash cow, showing the ability to generate significant revenue year after year even as the company raises prices. Plus, the company released one of the year’s biggest films “Avengers: Endgame” that passed “Avatar” as the highest-grossing movie ever. However, investors have a short memory. When the company missed on both its revenue and EPS numbers in their most recent quarterly earnings report, the stock gapped down and while it is still up over 20% for the year, the stock seems to be settling in at its current level making it a good time to take some of those profits and maybe … plan a trip to Disney.

Roku looks like a stock that has gotten ahead of itself

The next stock I want to look at is Roku NASDAQ: ROKU. If you were invested in Roku stock at the beginning of 2019, you have to be happy right now. The stock is up over 200% for the year. To the uninitiated, Roku started out as the hardware that exclusively powered Netflix. However, since being divested by Netflix in 2007, the company decided to spread the wealth. It quickly moved beyond its set-top boxes to provide streaming sticks that allowed users to stream not only Netflix but also Hulu and Amazon Prime Video. The company has since expanded into licensing its operating system to be used in smart TVs. Roku generates the bulk of its revenue by selling advertising. They were one of the first companies to notice and respond to, the consumer trend towards ad-supported internet video as opposed to subscription video-on-demand. Roku is just beginning to expand beyond the United States. And with new streaming services coming online, Roku would seem to be a logical benefactor as these new services want to get in front of as many eyeballs as possible. But recently, the stock seemed to get ahead of itself. After jumping over 20% after a positive second-quarter earnings report, the stock climbed over 45% to $176.55. At that point, the sell-off began. There’s little doubt that Roku is not done growing, but with the stock trading below its 50-day moving average, now may be the right time to take some of your money off the table.

Nvidia is not behaving like a semiconductor stock

The last stock I want to examine is NVIDIA NASDAQ: NVDA. The semiconductor company is up nearly 40% for the year. One reason for the growth is that the company’s graphics processing units (GPUs) are among the industry’s most sought after for artificial intelligence (AI) applications. And the company is betting big on autonomous vehicles. This initiative, and others like it, will help anchor the company in the Internet of Things (IoT) space which is projected to generate $373 billion in 2020 with hardware accounting for 52% of those sales. All of this is good for the company’s future growth. But I see the stock as being another example of growth that has gotten ahead of itself. NVDA is a semiconductor stock. It’s not supposed to move this far this fast. Many analysts felt the stock was overvalued at $140. Now at nearly $180 the overvalued case hasn’t gotten any weaker. 

Taking profits does not mean you have to hate a stock

Remember, bad stocks go up and good stocks go down. As an investor, you’re looking for high-quality stocks that have an upward trajectory. However, even these stocks will hit the occasional soft patch. And if that coincides with your regular end-of-year rebalancing, those might be time to sell some shares and allocate the money in other areas. If you believe in the stock long-term, you can always buy more shares when they have become less expensive.