Street Analysis

We have been warning for quite some time now that the market is completely unhinged and may explode anytime and enter into a full-blown crisis mode. In fact, it is a ticking time bomb that can implode anytime at first followed by explosion in the real economy.

The irony of it all is that the beneficiaries of the current market excesses are few privileged ones, i.e. the Wall Street types, not the Main Street types or the “Real Economy”. However, the explosion or the real effect of this implosion shall be felt by the real economy. In fact, they are all being felt already in way of high inflation.

“Privatize the profits and subsidize the losses” has always been the mantra of the elites driven by the Wall Street and the masses of ignorants are happy to oblige, unfortunately.

We just do not know the exact timing of when the implosion occurs. Yet, it continues to feel that we are eerily close to it. It is not a question of “if”, rather, it is a question of “when” – which is frankly anyone’s guess. However, that does not mean that we shall not prepare for such a dire situation. We must diligently do that in order to keep our portfolios in a fair health…or else, our portfolio can implode as well, which we rather not see.

Major stock market indices are completely out-of-control by ‘reckless’ acts from both fronts – the fiscal as well as monetary policies. Clearly, ‘people’ are to blame as well since they act like there is no tomorrow. Investors are not “true investors”, rather many of them, especially the ones that do matter, such as professional or institutional investors, have turned into gamblers, not just even speculators without any regard to the valuations, especially as they “play” with other people’s money.

As a result, we have culled the list of the candidates that are prone to implosion now. In our previous post, we covered the stocks that are down significantly from their peak already and this is only the beginning. Worse is yet to come.

Major indices are in an outright danger territory. See below as illustrated by two indicators – CAPE Shiller PE ratio (10 year average price-to-earnings ratio) and The Buffett indicator – market cap to GDP ratio.

Source: Shiller PE Site

Source: LongTerm Trends Site

Picture is worth the thousand words! And if one picture tells the whole story then it will be either of the above two! Take your pick!!

Using a criterion of modestly high to “nose bleeding” valuations such as price to sales (PTS) ratio of over 7 and market cap in excess of $100 billion, here are the stocks that made the list of “ticking time bombs” – 43 of them sorted in the order of high to low PTS. See the list below.

Company name	Ticker	Mktcap	Price	PTS	Down%	% Chge. 52 week	GM 3YA
Palantir Technologies Inc.	PLTR	329,875	137.80	63.14	34	25	81.07
Broadcom Inc.	AVGO	2,038,630	430.00	29.86	2	110	75.53
CrowdStrike Holdings, Inc.	CRWD	133,297	527.77	27.70	7	25	75.00
AppLovin Corporation	APP	158,088	468.55	25.65	37	54	84.13
NVIDIA Corporation	NVDA	5,230,634	215.22	24.22	1	84	72.93
Advanced Micro Devices, Inc.	AMD	742,415	455.19	19.82	0	354	51.93
KLA Corporation	KLAC	244,694	1869.19	18.68	4	169	60.23
Arista Networks, Inc.	ANET	178,304	141.77	18.36	21	64	63.37
Marvell Technology, Inc.	MRVL	144,270	170.13	17.61	3	202	46.70
Sandisk Corporation	SNDK	231,226	1562.34	17.54	0	4368	17.57
Analog Devices, Inc.	ADI	203,626	416.52	17.32	1	108	60.87
Lam Research Corporation	LRCX	367,483	294.05	16.95	1	292	47.13
Seagate Technology Holdings	STX	172,963	782.64	15.71	2	720	26.00
Intuitive Surgical, Inc.	ISRG	159,726	450.06	15.09	25	-16	66.63
CME Group Inc.	CME	101,058	281.25	14.99	15	-1	100.00
Palo Alto Networks, Inc.	PANW	146,348	207.88	14.79	7	10	73.33
Micron Technology, Inc.	MU	840,886	746.79	14.47	0	804	21.63
Prologis, Inc.	PLD	134,185	144.09	14.31	1	37	75.87
Texas Instruments Incorporated	TXN	261,610	287.80	14.19	2	75	59.33
Tesla, Inc.	TSLA	1,385,284	428.35	14.15	14	55	18.03
Visa Inc.	V	605,267	318.79	14.07	15	-9	97.77
Western Digital Corporation	WDC	164,162	480.01	13.94	1	984	29.70
Howmet Aerospace Inc.	HWM	108,765	270.56	13.18	4	72	31.00
Mastercard Incorporated	MA	441,473	495.48	13.01	18	-13	100.00
Welltower Inc.	WELL	150,206	214.63	12.77	2	42	39.80
Applied Materials, Inc.	AMAT	345,238	435.36	12.24	1	179	47.63
Vertiv Holdings Co	VRT	130,182	339.97	12.01	6	256	35.97
Intel Corporation	INTC	634,841	124.90	11.81	4	515	38.50
Eli Lilly and Company	LLY	848,389	948.45	11.74	16	22	81.17
Shopify Inc.	SHOP	144,028	110.51	11.65	39	17	49.43
Alphabet Inc.	GOOGL	4,848,227	400.71	11.48	0	165	58.17
Equinix, Inc.	EQIX	105,484	1072.08	11.07	5	23	49.53
Southern Copper Corporation	SCCO	152,253	185.29	10.46	17	118	57.77
Corning Incorporated	GLW	160,208	186.94	9.82	6	317	34.43
Microsoft Corporation	MSFT	3,082,236	415.06	9.68	25	-4	69.17
Apple Inc.	AAPL	4,303,041	293.26	9.53	1	49	45.73
Vertex Pharmaceuticals	VRTX	109,217	429.82	8.94	15	-1	54.03
Oracle Corporation	ORCL	563,160	195.95	8.79	43	31	71.57
S&P Global Inc.	SPGI	124,902	420.12	7.94	27	-17	68.80
Netflix, Inc.	NFLX	369,397	87.48	7.88	35	-24	45.37
McDonald’s Corporation	MCD	196,941	275.75	7.33	19	-13	57.10
Meta Platforms, Inc.	META	1,544,802	609.63	7.19	23	2	81.50
GE Vernova Inc.	GEV	279,800	1040.15	7.11	12	156	17.73

Source: Stock Investor Pro by AAII

This is where the highest amount of froth resides as they are mega-cap companies and many of them with the low gross margins and puny net profit margins or at least not sustainable enough due to one-time major windfall effect from artificial intelligence (AI) hype.

They can and will drop like a rock once they get out of favor, especially the ones with the low margins such as commodity types, i.e. memory chip makers and data center companies. They are flying high and before we know it, they will come back down to earth. We have seen a huge spike in their gross margins from subpar 3-year average to over-the-top trailing twelve months average due to artificial demand and AI windfall, hence they are up beyond reason.

As a reference, here are some standouts:

• See some staggering numbers here for their upward trajectory in last 12 months – these are not percents – they are multipliers – all semiconductor companies!
• • Sandisk (SNDK): 40x
• • Western Digital (WDC): 10x
• • Micron (MU): 8x
• • Seagate (STX): 7x
• • Intel (INTC): 5x
  • Advanced Micro Devices (AMD): 3.5x
• Following ones have started their trajectory down towards the earth again, though, some of them still have their price to sales ratio near the top of the list:
  • Oracle (ORCL): -43%
• • Shopify (SHOP): -39%
• • AppLovin (APP): -37%
• • Netflix (NFLX): -35%
• • Palantir (PLTR): -34%
• • Microsoft (MSFT): -25%
  • Meta (META): -23%
• More to come and many more casualties to be added next to the list above as a great majority of them are in an outright danger zone territory.

Walmart (WMT) and Amazon (AMZN) would not even make this list as their price to sales ratios are lower than our criteria here. However, they are equally vulnerable as their margins are even lower, materially lower! Tread carefully!!