The hottest stocks in the market have kept on defying gravity. Some still have fundamentals pointing to long-term gains, but it’s a good time to take profits on many others. Valuations across pockets of the market sit at levels that seemed unimaginable just 18 months ago, with the average Nasdaq-100 Index ($IUXX) price-earnings ratio sitting close to 2021 peak levels.
History says that tech valuations will eventually come down to the historical median of around 20 times earnings. It is tough to say when, but a few high-profile stumbles could be all it takes to remind everyone that gravity still works.
You should still keep in mind that it is foolish to try and time the market and bet against the hottest stocks. The broader market remains extremely bullish, with the best-case scenarios being priced in.
Instead of going all-in on shorts, it’s more rational to have small, far-dated put positions that can pay off greatly if the market turns bearish.
According to Barron’s, the following three companies may be the best targets. Analysts analyzed two separate lists of stocks to short during earnings season, and these three names were on both.
Stock #1: DraftKings
DraftKings (DKNG) is up 20.8% in the past year, but it may not count as “hot” for everyone, since the stock is still down over 16% compared to its 52-week high. DKNG made Barron’s short list since the stock is still expensive and technically stretched after rallying from April prices.
I wouldn’t short DKNG stock long term. You’re paying 8.2 times sales, and while the company is unprofitable at the moment, analyst expectations are high.
This earnings growth is expected to remain strong beyond fiscal 2026. Revenue growth is also expected to be 32.16% for 2025 and 19.4% next year.
Regardless, I’d watch out for a decline near the end of this year, especially if the broader market turns bearish at the same time. October and December have not been kind to DraftKings in the past.
This year could still be an outlier though, so I’d tread wisely.
Stock #2: Strategy
Anyone who can time Strategy (MSTR) in either direction will be laughing their way to the bank due to how rapidly the stock can swing. Sadly, it’s very difficult to do so.
Anyhow, MSTR is a good stock to bet against if you believe Bitcoin (BTCUSD) is about to peak out in the latter half of this year, which in turn should drag down MSTR.
MSTR stock is up 142% in the past year. The question is, is this time different? Will BTC see another crypto winter, or can Bitcoin ETFs and a supportive administration keep the rally going? No one can tell for sure.
MSTR trades at over 266 times sales and is a highly leveraged bet. If anything goes wrong in the crypto space and you’re one of the lucky ones holding some put options, you’ll have a multibagger in your hands.
Stock #3: Tesla
Tesla (TSLA) seems to be the most “shortable” to me of the three at the moment. Unlike the other two hot stocks on this list, this is a business that is truly declining. The stock is up 37% in the past year, and the company remains valued above $1 trillion despite the fallout between CEO Elon Musk and President Donald Trump and an underwhelming robotaxi rollout.
Not only that, Waymo and Uber (UBER) are threatening to eat Tesla’s lunch here.
That leaves Optimus robots, which are unlikely to be commercially mass-produced in the millions. AI is a paradigm shift, but considering Tesla’s full self-driving still makes mistakes and needs supervision, the market seems too optimistic.
Revenue fell 9.23% and EPS declined by 70.73% in Q1. For Q2, analysts expect revenue to fall 12.3%. Barron’s likely believes the results will make retail investors rethink paying 173 times trailing earnings and 10.5 times sales for TSLA stock.
You should hedge your bets regardless, as retail investors will pour in if Elon Musk can convince them about Tesla’s long-term potential.
