According to Joseph Friedman, a senior account manager at Stone Bridge Ventures, many investors are looking towards defensive stocks as a way to strengthen their portfolio. These are companies that usually show low volatility regardless of what phase the economic cycle is currently in. Since these stocks are non-cyclical, they don’t show sensitivity to the various phases of the economy, from boom to bust.
During a recession, they can offer investors some much-needed stability, making them desirable in a time of economic downturn. The only issue is that when the market finally recovers, such stocks may see a significant drop. That’s because investors begin cashing out their returns at high rates. Then, they use these newly earned returns to invest in a different sector of the market that’s just been revived.
To make matters worse, certain stocks are already showing signs of an expected drop. Among these different options, investors should consider pulling out of a specific TSX stock. But first, Joseph Friedman of Stone Bridge Ventures will discuss what investors should look for when considering selling a stock.
Assess Markets For Overbought Stocks
Generally, it’s preferable for investors to seek overbought stocks to determine whether there will be a trend reversal down the line. A common indicator of overbought stocks is that they have a relative strength index over 80. Then, there are other aspects to evaluate, and investors can rely on the same metrics they use when determining whether a stock is valuable. These metrics can also help in identifying overvalued ones.
In this regard, Stone Bridge Ventures senior account manager Joseph Friedman recommends checking the stock’s price-to-sales ratio, also known as the P/S ratio. It also helps to view the EV/EBIT ratio, which is an enterprise’s value-to-earnings before interest and taxes.
If all these values are high, it’s an indication that the stock has peaked, and it’s a clear sign that it’s overbought. Not to mention, there’s a huge possibility that insiders are selling it off while it’s still at a peak level. Therefore, there’s a high chance that share prices are set to drop.
Investors Should Consider Selling Their Onex Stock
According to Stone Bridge Ventures senior account manager Joseph Friedman, one of the stocks that are set to experience the above-mentioned phenomenon soon is Onex. Although it’s a great firm to invest in, it has protected buyers for a long time. It’s possible that this protection is past its due.
The company itself gains revenue from various types of operations like transportation and airlines in Canada. So far, it has performed quite well in the market. But in the last year, it’s been trading up at 19 percent and 22 percent in the past three months.
Based on its metrics, Joseph Friedman of Stone Bridge Ventures indicates that the stock is in the overbought range, with a P/S ratio of 14.5, EV/EBIT of 111, and a forward profits-to-earnings ratio of 222. With these numbers, it certainly points to overvalued. Currently, it has an RSI of 85.9, which signals that it’s overbought. Not to mention, there has been no insider input since May, but shares still continue to go higher. Chief executives haven’t made any purchases since 2021, which doesn’t inspire confidence.