The major stock market indexes have been hovering around their all-time highs of late, aided by strong corporate earnings and the advancement of an infrastructure bill in Congress. However, this backdrop has led to stretched valuations for some famous companies. Snowflake (SNOW), NIO (NIO), and Twilio (NYSE:TWLO), for example, are currently trading at price levels that are not justified by their fundamentals or growth prospects. So, we think one should avoid these stocks now at all costs. Read on.Even though the rapid spread of the highly contagious COVID-19 Delta variant continues to worry investors, the major stock market indexes have been hovering around their all-time highs on optimism surrounding the passage of a $1 trillion bipartisan infrastructure bill by the Senate and solid second-quarter corporate earnings. According to a FactSet report, more S&P 500 companies beat EPS estimates for the second quarter than the historic average.
However, this backdrop has led to expensive valuations for some fundamentally weak stocks. In addition, the current 38.54 Shiller PE ratio (or CAPE ratio) is significantly higher than the 16.84 mean. Several stocks that have rallied based solely on social media hype over the past few months have partly contributed to the higher-than-average Shiller P/E ratio.
Against this backdrop, we think it is wise to avoid the following three very popular stocks: Snowflake Inc. (SNOW), NIO Inc. (NIO), and Twilio Inc. (TWLO). They are rated Sell or Strong Sell in our proprietary POWR Ratings system. In addition, they have a D or F grade for Value and Quality, among other components.