1 Surging Stock with Exciting Potential and 2 We Find Risky

The stocks in this article are all trading near their 52-week highs. This strength often reflects positive developments such as new product launches, favorable industry trends, or improved financial performance.

But not every company with momentum is a long-term winner, and plenty of investors have lost money betting on short-term fads. Keeping that in mind, here is one stock we think lives up to the hype and two that may correct.

Two Stocks to Sell:

Red Rock Resorts (RRR)

One-Month Return: -4.1%

Founded in 1976, Red Rock Resorts (NASDAQ:RRR) operates a range of casino resorts and entertainment properties, primarily in the Las Vegas metropolitan area.

Why Does RRR Fall Short?

1. 7.1% annual revenue growth over the last five years was slower than its consumer discretionary peers
2. Estimated sales growth of 1.8% for the next 12 months implies demand will slow from its two-year trend
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Red Rock Resorts is trading at $59.98 per share, or 35.9x forward P/E. If you’re considering RRR for your portfolio, see our FREE research report to learn more.

Somnigroup (SGI)

One-Month Return: -2.6%

Established through the merger of Tempur-Pedic and Sealy in 2012, Somnigroup (NYSE:SGI) is a bedding manufacturer known for its innovative memory foam mattresses and sleep products

Why Is SGI Not Exciting?

1. Muted 10.1% annual revenue growth over the last two years shows its demand lagged behind its consumer discretionary peers
2. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 9.6% for the last two years
3. Eroding returns on capital suggest its historical profit centers are aging

At $82.06 per share, Somnigroup trades at 29.5x forward P/E. To fully understand why you should be careful with SGI, check out our full research report (it’s free).

One Stock to Buy:

Cencora (COR)

One-Month Return: +2.9%

Formerly known as AmerisourceBergen until its 2023 rebranding, Cencora (NYSE:COR) is a global pharmaceutical distribution company that connects manufacturers with healthcare providers while offering logistics, data analytics, and consulting services.

Why Are We Backing COR?

1. Enormous revenue base of $316.7 billion gives it leverage over plan holders and advantageous reimbursement terms with healthcare providers
2. Share repurchases have amplified shareholder returns as its annual earnings per share growth of 15.2% exceeded its revenue gains over the last five years
3. Industry-leading 57.1% return on capital demonstrates management’s skill in finding high-return investments

Cencora’s stock price of $298.07 implies a valuation ratio of 17.6x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.

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