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How Much Of Your Honda Motor Co. Ltd Stock Is Safe To Own? (Ticker: HMC) Thumbnail

How Much Of Your Honda Motor Co. Ltd Stock Is Safe To Own? (Ticker: HMC)

By Angela Dorsey

In the last year, Honda Motor Company (HMC) stock has seen some healthy growth. On May 11, 2020, HMC closed out trading at $23.98. By the closing bell on May 7, 2021, HMC was up to $30.93 for a total gain of $6.95 per share, which is about 28.98%.

If you’ve been on that train all year, you are probably pretty happy with those results. But some are wondering if the magic is going to last or if it’s time to get off at the next stop. Let’s talk about the pros and cons of holding on to your HMC stocks.

The Good News

In a nutshell, the good news is that 28.98% is good, healthy growth. Though it certainly wasn’t a straight line up to its current price, the growth has been steady over the last six months. It even appears to be climbing when most of the auto industry is in a slight decline.  

With its recent release of a new vehicle and impressive outperformance of estimated earnings in Q3 and Q4 of 2020, HMC seems to be an example of what to do right. The big question everyone wants an answer to is will it last?

The Bad News

Though HMC had a good growth outcome over the last year, it actually failed to keep pace with overall market returns as a whole. In the same one-year period as HMC, the Dow Jones Industrial Average grew 43.58%, the S&P 500 grew 44.44%, and the Nasdaq saw an astounding 49.61% growth. 

Granted, some of this growth was recovery. But if you count only the growth after the Nasdaq returned to the pre-pandemic high, you still have a growth of about 40%. So even though HMC grew well compared to the auto industry, it failed to keep up with any of the benchmark index funds by a dramatic margin. 

Should You Cash Out?

This is always the question, and the difficulty answering it is in the uncertainty of the future. Since we haven’t developed the ability to time travel, no one can tell you with absolute certainty when a stock is about to plateau and take a dive. 

HMC could report a strong Q1 and climb higher than it is now by a significant amount. It could also show a surprise loss and take a steep dip. The key word in this part of the equation is uncertainty. There is simply no way to predict with any kind of certainty how to time the market to be perfectly advantageous. 

This uncertainty is what makes all single stocks relatively high-risk investments. If you don’t have a strong measure of predictability, then you have an increased risk. One way to limit risk when involved in stock investing is to diversify your investment. The old adage of not having all your eggs in one basket applies. If you only have investments in HMC and in nothing else, then you undoubtedly need to consider diversifying your portfolio. 

This brings us to the two factors you can use to determine if you should keep your HMC stocks or start selling them off. The first is to determine how diversified you are. If you are really heavy in a couple of single stocks, you may want to manage your risk by diversifying your investments into other avenues, including some of these lower-risk index funds that have been performing tremendously over the last year. 

The second factor to use to determine whether or not you should buy or sell depends on a characteristic unique to each individual investor. Your specific risk tolerance is going to be the ultimate determining factor for you as an investor. If you are very risk averse, then you have no business being in single stocks at all. You should probably be in some conservative index funds. If you have an ultra-high risk tolerance, then maybe your portfolio can have a percentage invested in a variety of single stocks.

If you think that carrying HMC stocks is an acceptable risk for you, then you can let it ride and see what happens. If you think maybe you want to be more on the conservative side, then the fact that HMC is up pretty high makes it a good time to get out and look for other options.

Talk To An Expert

The bottom line is that it is up to you. However, sometimes people need some help deciphering the data and comparing it to their risk tolerance. You certainly don’t want to guess, and you don’t want to wait until after your investment drops to find out if you are in a good place for you. 

At Dorsey Wealth Management, we are committed to educating our clients in a way that empowers them to make decisions they can feel confident about. If you want to take a look at your portfolio and evaluate your unique situation, we are ready to help you as well.

Call us today at (310) 370-7776, or email angela@dorseywealth.com. Or, if you prefer, you can schedule a free introductory 30-minute phone call directly.

About Angela

Angela Dorsey is the founder and fiduciary wealth manager at Dorsey Wealth Management, a fee-only financial planning firm helping successful women and couples prepare for retirement. Angela earned a BS in computer science from Loyola Marymount University, an MBA from UCLA Anderson School of Management, and spent 20 years as a Senior Compensation Specialist in large corporations before becoming a Certified Financial Planner™ (CFP®) and a Registered Investment Advisor (RIA). That background gave her the tools to couple with her passion for empowering women to make the best financial decisions possible. Angela lives in Torrance, California, with her husband and two children. She enjoys spending time at the beach or surrounded by nature. To learn more about Angela, connect with her on LinkedIn.