How to Prepare for a Rate Hike?
Anyone who has been following me knows that I absolutely love Starbucks’ business model and call it the Apple of coffee.
While I really like the company, I think investors should consider selling the stock going into the rate hike and wait for a better entry point if the stock falls. The primary reason why I think investors should book profit is because of Starbucks’ valuation. Starbucks’ metrics are a bit stretched as the company is trading at a P/E ratio of almost 33.
Starbucks has benefited from the bullish economy, however a rate hike may prevent consumers from regularly spending $5 on coffee. Hence, I think investors should sell the stock and book profit.
Ulta Salon (ULTA)
Like Starbucks, I also like Ulta Salon’s business model. Ulta’s shares have grown consistently over the last few years, but the upward trajectory may soon end. Resembling Starbucks, Ulta also has a stretched valuation and is currently trading at a trailing P/E multiple of 40. Although the company is still in great shape, a rate hike can push the stock lower due to its expensive valuation. Going into the week, I think investors should sell Ulta and book a healthy profit.
Buffalo Wild Wings (BWLD)
I have recommended Buffalo Wild Wings twice, and although my July call has been unprofitable, the average return of both the calls has been positive. Buffalo Wild Wings is a good company and it is slowly expanding internationally. However, the company’s valuation is a bit ahead of its fundamentals and investors should sell the stock and book profit
Buffalo Wild Wings is trading at a P/E of almost 34 and a rate hike could push the stock downwards, making it a sell.
A rate hike will likely have a negative impact on the market and I would advise investors to sell the stocks that are trading at a premium valuation. I have recommended buying the three aforementioned stocks and while my calls have been profitable, I think the companies are overvalued. Hence, I think investors should sell them and wait for a better entry point going forward.
Published on Dec 15, 2015By Ayush Singh