Shares of Sandisk and Dell Technologies have been flying this year due to surging demand, driven by artificial intelligence.
Moderna's stock took off in August after it announced encouraging trial data involving a cancer vaccine it has been developing with Merck.
Interest rates are on the rise, midterm elections are coming up, and the stock market continues to hit new highs. There is ample uncertainty ahead, and plenty of reasons for investors to think twice about their holdings right now, especially those that are already up big this year and may be most vulnerable to corrections.
The three best-performing stocks on the S&P 500 this year have been Sandisk (NASDAQ:SNDK), Moderna (NASDAQ:MRNA), and Dell Technologies (NYSE:DELL). Is now the time to cash out and sell these stocks, or should investors continue to hang on to them?
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Up around 600%, Sandisk has been the hottest stock in the S&P 500 this year. Its ascension hasn't been a huge surprise, as demand for its products has been through the roof, with a shortage of memory products also driving up prices for customers.
Sandisk's business has been thriving, and many investors remain bullish due to the opportunities still out there due to artificial intelligence (AI). Companies are upgrading their infrastructure to better equip their businesses to handle new AI-powered capabilities and technologies.
Based on analyst assumptions, the tech stock is only trading at eight times its estimated future profits. As long as the shortage persists, as many experts believe it will, the stock could soar higher.
Sandisk may be a good example of a stock where it may be worth selling at least some position in, and keeping the rest. While demand remains robust, the rally can continue. But if there are any hints that business is slowing, the stock could be due for a big decline.
Moderna is not a stock I would have guessed would have made this list, even if I had 400 guesses. Healthcare stocks can rally quickly on positive clinical trials and related developments, and that's certainly what's happened with Moderna.
For much of the year, the stock was going nowhere. Then, in August, Moderna and Merck announced encouraging results from a trial involving a cancer vaccine they have been working on. When paired with Merck's Keytruda, it was a more effective treatment for melanoma patients than Keytruda alone.
A rally was certainly justified, but with Moderna's stock soaring around 550% this year, I question whether investors have gotten carried away as they have in the past with this stock. The treatment hasn't obtained approval yet, and even if it does, it may not generate the massive growth needed to justify this type of rally. I'd sell the stock before it inevitably comes back down to reality.
In at the third spot on this list is Dell, whose shares have risen by more than 350% this year. The company's business has been booming, with demand for AI servers and all types of tech infrastructure soaring. In its most recent quarter, Dell reported 58% revenue growth, with its top line totaling $47 billion.
The strong financial performance has made Dell a top growth stock to own this year. At 21 times its estimated future earnings, the stock isn't as cheap as Sandisk, but it is rallying for similar reasons. As long as tech companies keep investing in AI, Dell’s stock may continue to rise.
Similarly, investors may want to consider selling at least some of their holdings in the company while keeping a small position, as its numbers may remain strong in future quarters.
The big question mark, however, is when the spending might slow down. That's why it may be a good idea to at least trim some position in Dell’s stock, because, like with Sandisk, if there are any signs of a slowdown, it could be vulnerable to a sharp reduction in value.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck and Moderna. The Motley Fool has a disclosure policy.