Subscribe to Entrepreneur for $5
Subscribe

5 Overvalued Mega-Cap Stocks to Avoid in February

Given frequent market sell-offs on concerns over rising geopolitical tensions and expected interest rate hikes, it could be wise to avoid mega-cap stocks NVIDIA (NVDA), Visa (V), Mastercard (MA), The...

By
This story originally appeared on StockNews

Given frequent market sell-offs on concerns over rising geopolitical tensions and expected interest rate hikes, it could be wise to avoid mega-cap stocks NVIDIA (NVDA), Visa (V), Mastercard (MA), The Home Depot (HD), and The Walt Disney (DIS), as they look overvalued at their current price levels and might witness a pullback in the near term.

shutterstock.com - StockNews

The U.S. markets have been reeling under the pressure of the looming interest rate hikes this year. Moreover, though predicted to be transitory, the Ukraine-Russia tensions have deepened further, causing additional pressure on the market. As Russian President Putin seems unrelentingly aggressive with his invasion policies, a strong shockwave is set to keep the U.S markets depressed for the time being.

While mega-cap stocks are known to offer stable returns when the market is unstable, the overvalued ones possess the odds of losing significantly on investors' fears of losing out. Investors' escape from mega-cap stocks is evident from the Vanguard Mega Cap ETF's (MGC) 10.1% loss year-to-date.

Given this backdrop, overvalued mega-cap stocks NVIDIA Corporation (NVDA), Visa Inc. (V), Mastercard Incorporated (MA), The Home Depot, Inc. (HD), and The Walt Disney Company (DIS) are best avoided now.

NVIDIA Corporation (NVDA)

A pioneer of GPU-accelerated computing, NVDA operates worldwide as a visual computing company. The company has two segments: Graphics and Compute & Networking. Its market capitalization is $582.88 billion.

NVDA's revenue increased 52.8% year-over-year to $7.64 billion for the fiscal 2022 fourth quarter ended January 30, 2022. However, its total operating expenses came in at $2.03 billion, up 23% year-over-year. Its total current liabilities came in at $4.33 billion for the period ended January 30, 2022, compared to $3.92 billion for the period ended January 31, 2021. Also, its total liabilities came in at $17.57 billion, compared to $11.90 billion for the same period.

In terms of forward EV/S, NVDA's 16.81x is 360.6% higher than the industry average of 3.65x. Moreover, its forward P/S of 17.09x is 393.1% higher than the industry average of 3.47x. The stock has lost 26.8% over the past three months to close yesterday's trading session at $233.90.

NVDA's POWR Ratings reflect its poor prospects. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a D grade for Value and Stability. Click here to access the additional POWR Ratings for NVDA (Momentum, Growth, Sentiment, and Quality). It is ranked #59 of 97 stocks in the Semiconductor & Wireless Chip industry.

Visa Inc. (V)

V operates as a payments technology company worldwide. The company facilitates digital payments among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. Its market capitalization is $479.28 billion.

V's net revenues increased 24.1% year-over-year to $7.06 billion for the fiscal 2022 first quarter ended December 31, 2021. However, its total operating expenses came in at $2.28 billion, up 23.9% year-over-year. Also, its total current liabilities came in at $18.57 billion for the period ended December 31, 2021, compared to $15.74 billion for the period ended September 30, 2021.

In terms of forward EV/S, V's 16.51x is 352.4% higher than the industry average of 3.65x. Moreover, its forward P/S of 16.24x is higher than the industry average of 3.47x. Over the past six months, the stock has lost 4.3% to close yesterday's trading session at $221.32.

V's POWR Ratings reflect its poor prospects. The stock has a D grade for Value.

We've also rated it for Growth, Momentum, Stability, Sentiment, and Quality. Click here to access all the V ratings. It is ranked #8 of 52 stocks in the C-rated Consumer Financial Services industry.

Mastercard Incorporated (MA)

MA is a technology company that provides transaction processing and other payment-related products and services in the United States and internationally. It facilitates the processing of payment transactions and delivers other payment-related products and services. Its market capitalization is $362.85 billion.

For the fiscal fourth quarter ended December 31, 2021, MA's net revenue increased 26.6% year-over-year to $5.22 billion. However, its total operating expenses came in at $2.39 billion, up 15.9% year-over-year. Also, its total liabilities came in at $30.26 billion for the period ended December 31, 2021, compared to $27.07 billion for the period ended December 31, 2020.

In terms of forward EV/S, MA's 16.36x is 348.1% higher than the industry average of 3.65x. Also, its forward P/S of 16.08x is 363.9% higher than the industry average of 3.47x.

MA's POWR Ratings are consistent with this bleak outlook. It has a D grade for Value.

We have graded MA for Growth, Stability, Momentum, Sentiment, and Quality. Click here to access all of MA's ratings. It is ranked #21 of 52 stocks in the Consumer Financial Services industry.

The Home Depot, Inc. (HD)

HD operates as a home improvement retailer. The company operates around 2,298 Home Depot retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces, and Mexico. Its market capitalization is $330.16 billion.

HD's net sales came in at $35.72 billion, up 10.7% year-over-year for the fourth quarter ended January 30, 2022. However, its total operating expenses came in at $7.04 billion, up 4.3% year-over-year. Also, its total current liabilities came in at $28.69 billion for the period ended January 30, 2022, compared to $23.17 billion for the period ended January 31, 2021.

In terms of forward EV/S, HD's 2.68x is 106.9% higher than the industry average of 1.30x. Its forward P/S of 2.41x is 131.6% higher than the industry average of 1.04x.

HD's EPS is estimated to decrease 6% to $3.63 for the quarter ended April 2022. The stock has lost 9.4% over the past month to close yesterday's trading session at $316.17.

HD's POWR Ratings reflect its poor prospects. It has a D grade for Value.

Click here to access the additional POWR Ratings for HD (Momentum, Growth, Stability, Sentiment, and Quality). HD is ranked #25 of 61 stocks in the Home Improvement & Goods industry.

The Walt Disney Company (DIS)

DIS, together with its subsidiaries, operates as an entertainment company worldwide. It operates through two segments: Disney Media and Entertainment Distribution; and Disney Parks, Experiences, and Products. Its market capitalization is $269.62 billion.

DIS' revenues increased 34.3% year-over-year to $21.82 billion for the fiscal 2022 first quarter ended January 1, 2022. However, its cash and cash equivalents came in at $14.44 billion for the period ended January 1, 2022, compared to $15.96 billion for the period ended October 2, 2021. Its total current assets came in at $32.91 billion, compared to $33.66 billion for the same period.

DIS' forward EV/S of 3.88x is 62.4% higher than the industry average of 2.39x. Its forward P/S of 3.25x is 96.1% higher than the industry average of 1.66x. Over the past year, the stock has lost 22.8% to close yesterday's trading session at $148.09.

DIS has a D grade for Value and Quality. Click here to check additional ratings for DIS (Growth, Momentum, Stability, and Sentiment). It is ranked #13 of 19 stocks in the F-Rated Entertainment - Media Producers industry.


NVDA shares were trading at $223.87 per share on Wednesday afternoon, down $10.03 (-4.29%). Year-to-date, NVDA has declined -23.88%, versus a -11.16% rise in the benchmark S&P 500 index during the same period.

NVIDIA (NVDA) is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.


About the Author: Riddhima Chakraborty


Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

More...

The post 5 Overvalued Mega-Cap Stocks to Avoid in February appeared first on StockNews.com

Entrepreneur Editors' Picks