Susan Dziubinski: It's been a tough year for stock investors in 2022. And many expect volatility to persist as we head into 2023, given high inflation, rising interest rates, and a slowing economy.
Against this backdrop, we at Morningstar think it's prudent to favor companies that have competitive advantages, or what we call economic moats. These types of companies have more resilience in the face of economic uncertainty than companies that don't have significant competitive advantages.
But today we're looking at companies that do not have economic moats, are facing headwinds in the current economic climate, and look overpriced to us. Given their prices and economic vulnerability, we think these stocks are ones to cut loose going into the new year.
3 Stocks to Sell Before 2023
These 1- and 2-star stocks look overpriced. Data as of Dec. 1, 2022.
- Old Dominion Freight Lines ODFL
- GlobalFoundries GFS
- CF Industries CF
First is Old Dominion Freight Lines. Old Dominion is the fourth-largest U.S. less-than-truckload carrier by revenue. We think Old Dominion is the clear industry leader in terms of execution and service quality. That being said, freight demand is moderating as goods spending continues to shift to services, and inventory restocking diminishes. Plus, Old Dominion stock trades well above our fair value estimate of $201.
Next is GlobalFoundries. The chipmaker is benefiting from richer content in smartphones. Even so, management expects macroeconomic and geopolitical uncertainty to hurt sales in the first half of 2023, and we think the negative impact could last longer. Current market prices imply stronger growth than our expectations, and we peg the stock's value at $45 per share.
Last, there's CF Industries. CF Industries is a leading producer and distributor of nitrogen fertilizers. We view CF shares as overvalued, as the stock trades well above our $85 fair value estimate. We think the market is forecasting higher nitrogen prices for longer. Nitrogen prices have fallen over 30% since reaching a multiyear high during the second quarter of the year, and we expect prices to fall further in the coming years.
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Morningstar strategists Abhinav Davuluri and Seth Goldstein and senior analyst Matthew Young provided the research behind this segment.
Watch "3 Undervalued Stocks With Dividend Growth Potential" for more from Susan Dziubinski.