There have been plenty of times in the past two years that a recession seemed imminent but didn’t end up materializing. Those who sold watched as AI and tech stocks delivered blockbuster returns, and people stopped talking about fundamentals.
And who knows? Once again, we could be in a similar scenario. This time though, the argument that a recession is close does have its metrics. The Trump administration may have been too aggressive with its tariffs policy and considering the Federal Reserve has stopped cutting rates, this too could backfire on the economy.
In addition, the unemployment rate has been ticking up, and jobs data missed. Previous fears of a recession quickly went away as solid labor and GDP data surprised even the bulls in the past two years. There’s nothing like that this time around, and the Atlanta Fed expects the GDP to contract by 2.8% in Q1.
With that in mind, which stocks should you sell right now if you think a recession is imminent? Here are two that I think should be sold first:
They have very solid fundamentals, but you’re paying too much here. Palantir (NASDAQ:PLTR) has been delivering explosive gains over the past two years as the broader market has rallied. Tailwinds from the AI hype have kept it flying, but without these tailwinds, things could turn very different.
Bulls have ignored the price the market was paying for this stock as it soared above even 600 times earnings as the market was in a period of mania. Fundamentals may not have mattered back then, but the value is the first thing investors are going to look at when buying any stock in a downturn. They’re going to look at the floor price for safety, and that is very low here.
In addition, the current administration has been much less friendly to the defense industry than previously thought. Defense budget cuts are probably not going to materialize, but that’s a risk you need to keep in mind.
The consensus price target of $74.97 still implies 6.4% downside. A recession would knock it down a lot lower. You’re still paying 152 times forward earnings.
Tesla (NASDAQ:TSLA) also defied fundamentals after Trump won the election. Unfortunately, Trump’s election was never going to have any material impact on Tesla’s fundamentals. If anything, it is going to harm Tesla if subsidies are pulled bacl.
Some argue that Tesla’s competition will be wiped out, but that’s already the case. How many EV startups are profitable in the U.S. or in any Western country that isn’t subject to massive EV tariffs? You’d struggle to name any. Most of these EV startups are likely going under regardless, so while a lack of EV subsidies would send them down faster, it’s likely that the margin compression would also send TSLA tumbling.
TSLA is currently down about 45% from its peak this year. This is where you’d usually start considering buying the dip, but I wouldn’t You’re still paying 93 times forward earnings for a company with worsening growth metrics and a very real possibility of a near-term hit to its earnings.
And if we are going into a recession, there’s no doubt that the market is unlikely to pay that much. Optimus robots were remote-controlled at recent events, so I doubt Wall Street will buy into that and hold up TSLA stock’s premium.
The consensus price target of $326.31 implies 35.65% upside. This may materialize if the market recovers. But if a recession does come, expect TSLA below $150.
