4 Stocks About to Crash (Here's Why)

As the stock market has gotten into pretty expensive territory, we're at basically all-time highs for the price earnings multiple for the S&P 500 when we haven't been in a recession or some sort of big big downturn when the E is really impacted. Could that mean that we're in bubble territory? And what stocks do investors maybe want to take some profits on? We're going to go through four of those today with Lou Whiteman. Lou, I'm going to bring the first one to the table. One that I have just been shocked at how popular it is in the market. that is Coreweave. And the reason that I still think this is one of these companies that investors should look at a little bit more skeptically is they still need to fund a lot of these obligations that they have in the future. You can look at their business and sure they sign these huge deals, but they don't actually have the cash to build out those data centers at least yet. That means they're going to have to sell equity. They're gonna have to sell debt. And the problem with that is if those equity or debt markets start to close down to you and and the big sign here is if your stock starts to fall and by the way stock is in a 55% draw down it gets more expensive to sell equity. It gets more expensive to take out debt eventually you get to a point where it's more expensive to build that data center than the return that you're going to see from that data center. So they're playing with fire a little bit here. The example that I always go back to, Sun Edison, uh, it was a renewable energy company in theory could grow forever. Signed massive, massive deals on this exact same principle. Hey, we'll just be able to sell debt and equity. They eventually went bankrupt. Not saying that's what's going to happen to Core Wee, but the economics here are not just how much demand you have, it's how much money can you make on those data centers. I don't think that's clear as investors think right now. If anything, I think you're underelling the risk, too. Because there's one thing that here's my pet peeve with these business and the same one with the data center reats that we're talking about. [snorts] This isn't real estate the way we think of real estate. We've been conditioned to think of big boxes as the expense is building it and then you just extract revenue over time. Yes, they have huge huge capex uh obligations to just build new. But data centers are living breathing organ say okay uh for coreweave you have the chip depreciation but just for all of these guys too these are really really high-tech air conditioning systems you know what it costs Travis to just maintain the air conditioning in your house there is massive expense just to sustain this the electric supplies again you have massive electric coming in there is ongoing maintenance here the fiber lines that are coming in upgrades and just keeping going there. I don't see the capex cycle breaking for any of these companies. And so, we're not going to get the typical real estate return where once it's done, at least we can benefit. I think the market's really missing the mark by making that comparison. And that scares me as an investor. >> Yeah, it's one of those businesses that is going to work until the moment that it doesn't. And that's some that's one of these cycles that investors we we need to learn over and over and over again. All right, let's go to the second stock that you brought to the table that I I really like looking at it. It's actually down about 15% from its high, but that's Walmart trading for about 40 times earnings. >> Yeah. And it's doubled in three years. And look, Walmart's a great business, but Walmart is not the type of business that's supposed to double every couple of years. Walmart has done a great job and partially at Target's expense. Walmart went upstream. When I was growing up, Walmart was, you know, kind of just the bottom of the barrel and it's not today. There are a lot of middle class, upper middle class used Walmart. They have eaten a lot of people's lunch with that. I mean, goodbye Kohl's, goodbye to well, not goodbye yet for Target, but you know, a lot of the the stress we've seen in other parts of retail, it's because Walmart has eaten their lunch. But there's limits to that. And now Walmart is sort of facing the same thing that they used to benefit from where if there is a little bit of strain on the consumer, these higherend customers that now go to Walmart, they might be pulling back a bit. So it isn't just like what the dollar stores are where it is a flight to safety in a recession anymore. You know their their mix has changed. If there is a recession that is going to eat into some of Walmart's growth. Love the company but as you say about 40 times earnings really really bit up. I feel like if you own this one it's a good time to take profits. Yeah, this was one of those it was interesting to see when it was really rising was investors were just looking for what in a world where everything is disrupted by AI, what do we know is going to be around five or 10 years from now and it was just kind of like well Walmart I guess. So that it seemed to be as simple as that from a investment standpoint. Uh but yeah, has gotten extremely expensive. Let's talk about another stock that doesn't look expensive but might actually be very expensive. That is Micron. Micron is one of the hottest stocks in the market. It's now a trillion dollar company, but and I'll put put some of these graphics on the screen here. The gross profit margin for Micron is now 85%. Typically, you're going to get a gross profit between 30 and 50% and sometimes that gross profit is going to be negative. So, you're going to actually lose money on everything that you make if you're a Micron. Their operating profit is now also at all-time highs. So you add that together and you have a business that is it really sustainable where they're at today. I know that you look at the price to earnings multiple especially on a forward basis it's about 6 and a half uh on the sources that I was looking at but that oftent times means that the market knows that something is coming in the future. That something is that everyone is seeing there's an opportunity to make a profit in memory today. It's not just the big three that I think we need to be looking at. It's actually China. And the big canary in the coal mine there is Apple. Apple has gone to the US government and said, "Hey, you know what? We got to raise the prices of all of our products. Everybody's going to be upset about that. How about we how about you let us use these Chinese memory products that are a little bit cheaper, brings a little bit more supply to the market. Ultimately, that is going to hurt Micron's profitability, their margins, and it's going to bring more competition into the market. So the memory is a great business if it's an oligopoly. If you got five, six, seven players, that's a much tougher business long term. >> The mar and maybe this is unfair of me, but the margin thing is so funny to me because this is an industry that actually was accused and and people paid fines on collusion a few years ago. So to see it now, Micron, to their credit, they were kind of the whistleblower. So they they they weren't really caught up in it. Yeah, this is part of the danger of leaning too heavily on any one metric because you're right, the metrics don't look bad today, but we that metric needs context. We have just gone through an amazing period and yes, if this is sustainable forever and if it continues to grow from here, this valuation looks quite reasonable. But a combination of we are at just crazy demand times that look I don't know how long it's going to last but I will take the under on forever plus as you say it's incentivizing new supply to come on the markets in various ways it doesn't feel sustainable even in the medium term forget the long term and so yeah again there's nothing wrong with profits micron has had a great year cheers take your profits and move on and I'm not going to buy in right now personally The other thing I think we need to think about with some of these is that your customers have agency too. Your customers can say, you know what, wow, this has become an incredibly expensive piece of the piece of hardware that we're making. Whether you're Apple, whether you're Nvidia, whether you're, you know, Amazon, I know, was one of the companies that was just shoving a whole bunch of memory into their chips because that was a way to get a little bit better performance out of them. Well, if that suddenly spikes your cost, now you got to get more efficient. you got to make different design decisions that that ends up hitting down the road. It doesn't those design design decisions that are being made about chips today aren't going to be made tomorrow. They're going to be made next year and the year after and the year after that. And that's really where you have a question. Yes, a six price to earnings multiple looks really attractive today, but if that E drops 80%. Suddenly, you've got a stock that looks pretty expensive and earnings are headed in the wrong direction. All right, stock number four for us. General Electric. What are you thinking here, Lou? >> And this is GE Aerospace. This is what's left of the conglomerate. And this one hurts. Okay, so because I do I respect the heck out of this company. And I think all of the reasons it is up, Travis. It's up 300 something% since it's a spin-off from the >> phenomenal phenomenal return is splitting this company. >> Yeah. And and that's justified because we are in an unprecedented commercial upswing. And look, if you just look at the order books for Boeing and Airbus, they stretch into the 2030s now. So even if they're overstated, this rally has room to run. Aerospace is a great company, but not to sound like a broken record here, it's okay to take profits. They're trading at 45 times earnings right now. Their margin is basically maxed out even with uh even with demand. At some point, if parts get too expensive, air airlines are just going to say, "All right, maybe we won't add this route this year." Okay. and we are about there in terms of pricing power for these suppliers. This is a great business and you may want to hold figuring okay well I think it can sustain but I do think that we're not going to have another few years like the last few so if you have enjoyed these gains I certainly I don't want to chase this rally here given how far we've come along and I think if I own this one I'd be tempted to just take some off the table and celebrate again a fantastic company that's at a fantastic room. Yeah, I think the theme here is these are great companies and and two things can be true. You can have a great company and it can be a stock that's just too priced too high. And one of the cautionary tales that I bring to the market is Adobe was this a couple of years ago. Shares were trading for 40 50 times earnings. I remember doing a video about how o overvalued Adobe was because the the growth rate was solid, but it wasn't necessarily deserving of a 40 or 50 times priced earnings multiple. Now that stock's down what, twothirds, three quarters at this point, and you're looking at it going, gosh, this is looks like a value stock, but is is the company broken at this point. You don't want to be buying at that peak. You want to be buying when it's a when it's a value and you're you're trending upward. So, just something to think about for investors. Let us know what you think about the four stocks we talked about today. Coreweave, Walmart, Micron, and General Electric. Leave those comments in the comments section below. Don't forget to subscribe here on YouTube. Thanks for watching everybody. See you here next time.