In Another Week of Gains, Walmart and Netflix Lead the Way Among the Most Overbought Stocks

The S&P 500 climbed to unprecedented levels this week as investor enthusiasm drove stock purchases, pushing the index toward a three-week winning streak. The broad market benchmark has gained nearly 1% week-to-date, while the Nasdaq Composite surged over 3% for the week, with both indexes reaching new intraday highs on Friday.

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However, not all indices have shared in the upward momentum. The Dow Jones Industrial Average lagged behind, declining about 0.5% this week.

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As the rally propels select stocks to higher valuations, some may now be overbought, increasing the likelihood of a pullback. Using CNBC Pro's stock screener tool, which relies on data from LSEG, stocks with a 14-day relative strength index (RSI) above 70—indicating overbought conditions—were identified. Conversely, an RSI below 30 suggests oversold stocks, which may present upside potential.

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Overbought Stocks Highlighted by the Rally

One of the most overbought names identified is Walmart, which holds an RSI of approximately 83.3. The retail giant’s shares hit a fresh 52-week high on Friday, bolstered by its perceived strength in appealing to cost-conscious holiday shoppers.

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Bank of America reaffirmed its buy rating for Walmart on Thursday, highlighting the company’s transformation into a digital and omnichannel leader. Analyst Robert Ohmes noted that this shift has driven market share gains across income levels while unlocking profitable monetization opportunities.

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“WMT has undergone a digital/omni-channel transformation that is driving share gains across incomes and unlocking high-margin monetization streams,” Ohmes wrote in a client note. He projected further sales growth, margin improvement, and outperformance relative to peers, which could continue to elevate Walmart’s valuation.

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Bank of America set a $105 price target for Walmart’s stock, suggesting a potential upside exceeding 10% from Thursday’s closing price. Walmart’s shares have surged more than 82% in 2024, solidifying its position as a standout performer.

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Netflix also ranks among the overbought stocks, with an RSI exceeding 76. The streaming company’s stock has risen by an impressive 90% this year. Analysts attribute much of this growth to the rapid expansion of its ad-tier memberships, which saw a 35% quarter-over-quarter increase in the third quarter.

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Looking ahead, Netflix plans to introduce its ad-supported tier in Canada in the coming months and expand it further in 2025. Citi Research analyst Jason Bazinet highlighted the ad-tier’s pivotal role in driving both subscriber growth and average revenue per user (ARPU).

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“We believe multiple expansion driven by incremental confidence in the firm’s ad-tier has been the primary driver of NFLX’s equity returns this year,” Bazinet explained in a recent note. He raised his price target for Netflix by $195 to $920, though this implies a modest 0.2% upside from current levels.

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Other stocks deemed overbought include Palantir, United Airlines, and Take-Two Interactive Software.

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Palantir, in particular, has been a standout performer in 2024, skyrocketing by over 340%. Shares surged nearly 6% on Friday following the announcement of a partnership with Booz Allen Hamilton to enhance U.S. defense mission innovation.

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Oversold Stocks Offering Potential Upside

While some stocks have soared, others have struggled, finding themselves in oversold territory. Notable examples include food industry giants Kraft Heinz and Mondelez.

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Kraft Heinz shares have fallen more than 3% this week and remain down for the year. Recently, Piper Sandler downgraded the stock to neutral from overweight, citing challenges in reversing its retail sales decline, particularly within its Lunchables brand. The firm also raised concerns about potential regulatory risks under President-elect Donald Trump’s appointment of Robert F. Kennedy Jr. as head of the Department of Health and Human Services.

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Mondelez has also seen a more than 2% decline this week, further cementing its underperformance for the year.

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Health-care stocks like HCA Holdings and Johnson & Johnson similarly made the list of oversold names, suggesting potential buying opportunities for investors looking for value plays.

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Market Implications

As the S&P 500 and Nasdaq Composite continue their ascent, the divergence between overbought and oversold stocks underscores the importance of selective stock picking in the current market environment. While high-flying names like Walmart and Netflix have attracted investor attention, their overbought conditions could lead to profit-taking in the weeks ahead.

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Conversely, the struggles of oversold stocks like Kraft Heinz and Mondelez may present opportunities for those seeking value plays in the market’s lagging sectors.

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The year-end rally reflects investor optimism, but with some stocks appearing stretched, caution may be warranted as traders navigate the potential for pullbacks and seek to capitalize on undervalued opportunities.

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