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3 Obscenely Overpriced Stocks I Wouldn't Buy Even if the Market Crashes

By David Jagielski - Jun 22, 2021 at 5:39AM

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A lower price won't address these other risks.

Last week was a rough one for the markets -- their worst since October. And with talk of interest rate increases coming sooner than expected, investors are on edge with concerns about a possible stock-market crash. Of course, if a crash does happen, it could create opportunities to pick up solid stocks at reduced prices. But there are other stocks I'm not so sure about.

Three stocks that I probably wouldn't buy even if the markets were to crash are Ocugen (OCGN -4.12%)Tesla (TSLA -0.37%), and Snowflake (SNOW 0.28%). Although a lower price might make them more tenable investments, there's still sufficient risk in these stocks for me to pass on them.

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Image source: Getty Images.

1. Ocugen

Retail investors have been excited about Ocugen's stock this year, but I don't share that enthusiasm. The business's hopes rest on Covaxin, a coronavirus vaccine candidate it is co-developing with India's Bharat Biotech. The companies' agreement stipulates that Ocugen will only share in the profits from sales in Canada and the U.S. -- and prospects for the latter market took a hit this month, when the company said it would no longer seek an emergency use approval for Covaxin from the U.S. Food and Drug Administration (FDA). Instead, on the FDA's recommendation, it will seek a biologics license application that will take longer to obtain, possibly up to 10 months. Even if Covaxin wins approval, the vaccine may no longer be needed by then, with vaccination rates continuing to climb.

With nothing else in its pipeline that has even made it to phase 2, Ocugen without Covaxin is back to being a high-risk biotech stock that may or may not someday have a product available to sell. And that brings tons of risk for investors. The company generated no revenue in the first three months of 2021, and that alone is a big enough reason to stay away from this healthcare stock. When you take away the meme hype, there isn't much reason or substance behind an investment in Ocugen. 

A market crash may bring down its price, but even if it were to fall to less than $1, Ocugen would still be a risky buy and not one I'd be willing to take a chance on.

2. Tesla

Tesla isn't a bad business, and I get why people are fans of it. The electric-vehicle maker has significant potential as the demand rises for more environmentally friendly cars. And Tesla has come a long way in strengthening its financials. Once consistently in the red, it was profitable over the past 12 months -- and has even been included in the S&P 500.The company has turned itself into a much more formidable investment. 

However, at 3%, its net margins are still razor-thin. The stock trades at more than 19 times revenue and a staggering 620 times its profits. The average holding in the SPDR S&P 500 ETF Trust trades at multiples of just 2.9 times sales and 26 times earnings.  As with Ocugen, retail investors have driven up the price of Tesla's stock to obscene levels, making it hard to buy shares of what otherwise could be a solid long-term investment. 

The other problem I have with Tesla is its potential exposure to Bitcoin (CRYPTO: BTC). CEO Elon Musk has been flip-flopping on whether his company will accept the cryptocurrency for payments on vehicles. If Musk decides that Tesla should do so, that exposes the company to a lot of risk. All currencies normally fluctuate somewhat, but Bitcoin's volatility could send a company's financials on a wild roller coaster ride.

Musk has an impressive following, but his leadership style adds an element of risk to an already expensive and vulnerable stock. A crash in the markets would probably make Tesla's stock cheaper, but for me, it wouldn't be enough to offset the level of risk involved. 

3. Snowflake

Of the three stocks on this list, Snowflake is the one I'd be most likely to buy. My biggest concerns with this business relate to its competitiveness and ability to turn a profit. Although sales have been increasing -- for the three months ending April 30, they more than doubled to $229 million from the prior-year period -- the company's losses have also doubled during that time.

And competition for cloud-based data and analytics can be fierce. Companies such as Amazon.com, Microsoft, and Alphabet are some of the bigger names in the space -- and to complicate things, Snowflake also uses their services. For now, there appears to be enough room for all these major players to co-exist, but that still poses a risk to Snowflake's business. The lack of a sustainable competitive advantage, or moat, makes the stock particularly vulnerable should one of these larger companies try to expand and fight for more market share.

Those risks make it hard to stomach the stock's whopping price-to-sales multiple, which sits at 90. Even with a significant correction in price, the lack of profitability and dependence on companies that could pose threats to Snowflake's long-term business would be enough of a reason for me to pass on the company and opt for more attractive growth opportunities instead. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Bitcoin, Microsoft, Snowflake, and Tesla. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Ocugen, Inc. Stock Quote
Ocugen, Inc.
OCGN
$2.56 (-4.12%) $0.11
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$908.61 (-0.37%) $-3.38
Snowflake Inc. Stock Quote
Snowflake Inc.
SNOW
$161.75 (0.28%) $0.46

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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