Sell ​​alert: 3 stocks you should dump before they fall more than 10%

It’s been a strong year so far for the stock market. Stock prices have risen about 50% since their low point in October 2022. That’s the best performance since 1957. Historically, however, traders look for specific stocks to sell during periods of strong growth.

Typically, stocks experience some degree of pullback, defined as a 10% decline from the recent peak. While they don’t seem ready to sell yet, there are signs of unease as investors worry about the concentration of gains in a small group of big tech companies.

In fact, a select number of large-cap technology stocks benefited disproportionately from the returns, leading to mixed performance across the market. NVIDIA (NASDAQ:NVDA) is an example of this trend and briefly became the most valuable company in the world. However, it lost that title within a few days as its share price fell 13% in a week, which meets the technical definition of a correction.

This raises the question of whether it’s worth selling other stocks that have seen impressive gains recently before they crash. The following three show signs of being overvalued.

GameStop (GME)

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The historically volatile GameStop (NYSE:GME) shares are among the stocks to sell. They recently attracted media attention due to an options purchase by a prominent social media investor. GME’s share price has fluctuated by over 480% in recent months, but is trading 35% higher since the beginning of the year. Understandably, the price movements deviate from what traditional investors expect.

Social reactions aside, GME has capitalized on the increased interest by issuing additional shares, raising $1.2 billion last quarter. While quarterly revenue growth declined 28.70% year over year, the company remained profitable. Still, with a price-to-earnings (P/E) ratio of 296x, GME stock appears to be more influenced by fluctuating online sentiment than sustainable earnings.

The analyst consensus is forecasting a 166.70% growth decline for this quarter without earnings, which appears to be a current trend for the full year. Although only one analyst recommends selling GME shares, the average price target of $8.38 implies a 65% downside risk. That’s roughly in line with GME’s 52-week low of $9.95 per share.

ZIM Integrated Shipping Services (ZIM)

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The Israel-based container shipping company ZIM (NYSE:ZIM) has seen a significant increase in its share price this year despite the issues surrounding the Gaza conflict. The market is affected by several factors, including disruptions in the Red Sea, increasing demand from China to Northern Europe and higher fuel costs.

ZIM’s share price has risen over 106% since early January, with most of the gains coming since late April on the back of rising freight rates. The sudden surge in the company’s share price has exceeded analysts’ forecasts and left the stock vulnerable to market fluctuations. Consensus estimates call for no profit next quarter and earnings to fall even deeper into negative territory.

Earlier this month, ZIM stock price saw a correction after Citigroup downgraded the rating to sell, but showed signs of recovery. Still, analysts do not believe the price increase can be sustained as their average price targets represent a potential downside of 42%. Given the volatility and uncertainties, ZIM could be one of the stocks to sell.

Rocket Company (RKT)

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Rocket companies (NYSE:RKT) is the last pick in this list of stocks to sell. The fintech company specializing in real estate financial services and mortgages has not performed well this year due to the weak state of the U.S. housing industry. While the market waits for a rate cut from the Federal Reserve, RKT stock could remain under pressure.

While the company could grow as interest rates fall, applications for new mortgages have declined in the high-interest environment. Despite barely remaining profitable last quarter, operating cash flow was -$1.57 billion.

Analysts seem unconvinced by Rocket’s current prospects. None recommend buying RKT stock, and they have an average price target of $11.69 per share, representing a potential downside of 18%. Given the lack of analyst support and a forward P/E ratio of 58.82, which is over half of the current ratio of 117.50, RKT stock could correct to lower levels.

At the time of publication, Stavros Tousios had no position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com Publishing guidelines.