3 Stocks to Sell for 2Q 2024

Susan Dziubinski: Hi. I’m Susan Dziubinski with Morningstar. As we shift into the second quarter of 2024, investors have some questions. Will inflation remain sticky? When will the Federal Reserve begin to cut interest rates? Will the economy continue to hold up? And what will all of this mean for the stock market?

We don’t know the answers to the questions here at Morningstar—no one does. But according to our metrics, the market looks a bit stretched heading into the new quarter. So, depending on an investor’s tax situation and overall goals, now might be a good time to sell overvalued stocks.

With that in mind, we’re looking at three overvalued stocks that Morningstar’s analysts cover. Although we like these companies, we think their stocks are too expensive today.

3 Stocks to Sell for 2Q 2024

1. Progressive PGR
2. Wingstop WING
3. Home Depot HD

The first expensive stock on our list is Progressive. Morningstar thinks Progressive is one of the most attractive franchises in the insurance industry. Progressive is the second-largest underwriter of auto insurance, and thanks to its scale and efficiency, Progressive earns a narrow economic moat rating. Progressive’s top line has been very strong in recent years, and we expect it to benefit from recent price increases. We also think it could take away market share from struggling competitors. Morningstar assigns Progressive stock a $114 fair value estimate, and shares trade way above that.

Next is Wingstop. Morningstar thinks the chicken chain has carved out a narrow economic moat, and we’re expecting systemwide sales growth in the midteens over the coming decade. Management has done a great job of maintaining a solid balance sheet and investing capital, all while generating outsize growth. In fact, Wingstop’s average annual growth over the past five years exceeds that of top brands like wide-moat Starbucks SBUX and Domino’s DPZ. We’re optimistic about the company’s future, too, projecting a 10-year compound annual growth rate of 16% for revenue and 18% for operating profit. But the stock is simply too expensive. We think Wingstop stock is worth $139 per share, and the stock trades at more than twice that.

And lastly, there’s Home Depot. Morningstar thinks the world’s largest home improvement retailer has carved out a wide economic moat based on its economies of scale and brand. We also think that management has done an excellent job of allocating capital by maintaining a solid balance sheet, spending strategically to maintain brand, and consistently returning capital to shareholders. Given the maturity of the home improvement industry, we project 3.5% average sales growth over the next five years. We think shares are worth $263, and they trade well above that.

For more stock insights be sure to subscribe to Morningstar’s channel and visit Morningstar.com.

Morningstar senior analysts Sean Dunlop, Brett Horn, and Jaime Katz provided the research behind this segment.

Watch We Just Upgraded These 6 Companies. Is It Time to Buy the Stocks? for more from Susan Dziubinski.