Each stock in this article is trading near its 52-week high. These elevated prices usually indicate some degree of investor confidence, business improvements, or favorable market conditions.

While momentum can be a leading indicator, it has burned many investors as it doesn’t always correlate with long-term success. On that note, here are three overhyped stocks that may correct and some you should consider instead.

AGCO (AGCO)

One-Month Return: +2.2%

With a history that features both organic growth and acquisitions, AGCO (NYSE: AGCO) designs, manufactures, and sells agricultural machinery and related technology.

Why Do We Avoid AGCO?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Sales were less profitable over the last two years as its earnings per share fell by 70% annually, worse than its revenue declines
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

AGCO’s stock price of $112.41 implies a valuation ratio of 22.2x forward P/E. To fully understand why you should be careful with AGCO, check out our full research report (it’s free).

Vishay Precision (VPG)

One-Month Return: +0.8%

Emerging from Vishay Intertechnology in 2010, Vishay Precision (NYSE: VPG) operates as a global provider of precision measurement and sensing technologies.

Why Are We Out on VPG?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 10.2% annually over the last two years
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 17.4% annually while its revenue grew
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

Vishay Precision is trading at $28.47 per share, or 28x forward P/E. If you’re considering VPG for your portfolio, see our FREE research report to learn more.

Hayward (HAYW)

One-Month Return: +8.4%

Credited with introducing the first variable-speed pool pump, Hayward (NYSE: HAYW) makes residential and commercial pool equipment and accessories.

Why Are We Hesitant About HAYW?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Earnings per share have dipped by 30% annually over the past four years, which is concerning because stock prices follow EPS over the long term
3. Free cash flow margin dropped by 5.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up

At $16.23 per share, Hayward trades at 20.9x forward P/E. Read our free research report to see why you should think twice about including HAYW in your portfolio.

High-Quality Stocks for All Market Conditions

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