Although the overall stock market looks reasonably valued, there are pockets of extraordinary risk where stocks with 2000-bubble-like valuations lurk.
Specifically, there are “micro-bubbles” in certain stocks, where valuations reflect expectations for future cash flows that would require unrealistically higher margins, faster growth, and larger market share. These expectations might not be so “bubbly” if not for the fact that the current margins, growth rates, and market share of these companies have trended at very low or negative levels for years. We highlighted five other micro-bubble stocks in “Bursting the Micro-Bubble – Part 1.” The stocks featured in that 8/6/18 report are down an average of 3% while the S&P 500 is up 1%.
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