Tom Lee believes last week’s stock market sell-off may have marked a bottom as stocks recovered despite negative news. However, investors may still need to be careful about which stocks they hold as several major companies are trading near their all-time highs.
The S&P 500 is trading at 17.7 times expected earnings, above its long-term average of 16.4. While the recent market decline has brought some prices down, not every stock has become attractive.
The four stocks to consider reducing are Apple, Johnson & Johnson, Walmart, and Coca-Cola. Texas Instruments and Altria remain on the hold list.
Why Tom Lee Thinks the Stock Market Has Bottomed
Tom Lee pointed to two signs behind his positive market outlook.
First, stocks recovered despite negative news involving Nvidia and Elon Musk’s companies. He believes this shows that buyers are still willing to enter the market even when uncertainty remains.
Second, the VIX futures structure returned to normal after turning negative last week. Lee sees this as another possible sign that the market has reached a bottom.
However, a market recovery does not mean every stock is worth buying or holding at its current price.
4 Stocks to Reduce
1. Apple Stock (AAPL)
Apple stock is trading around $350, up 29% in 2026. The company reported $115 billion in quarterly revenue, an increase of 12% year over year. Its annual free cash flow also reached a record $136 billion.
Despite its strong results, Apple stock trades at around 37 times expected earnings, compared with its five-year average of 29. Its current valuation leaves limited room for further gains.
The valuation estimate puts Apple’s fair value at around $272, assuming annual cash flow growth of 10%.
Consider reducing holdings near $350 and watch the $270–$280 range for a better entry point.
2. Johnson & Johnson Stock (JNJ)
Johnson & Johnson stock has gained 36% in 2026 and is trading around $280. Strong sales of newer drugs helped the company deliver results, while management raised its full-year earnings outlook to $11.05–$11.15 per share.
However, the stock has become expensive compared with its historical valuation. It trades at 25 times expected earnings, against its five-year average of 16.
The three valuation estimates put its fair value between $188 and $220, with an average of around $200.
Consider reducing holdings near $280. The $200 level is where the valuation becomes more attractive.
3. Walmart Stock (WMT)
Walmart stock is up 30% in 2026 and trades around $126. Its online business continues to grow, with global e-commerce sales increasing 23% and advertising revenue rising 38%.
However, free cash flow declined around 15% as the company increased spending on its business. This raises questions about how much of its growing revenue will turn into cash.
Walmart trades at around 42 times expected earnings, well above its five-year average of 26. Even assuming 15% annual cash flow growth over the next decade, the valuation estimate puts the stock at around $73.
Walmart’s next earnings report on November 19 will be important for checking whether its business growth is improving cash flow.
Consider taking some profits near $126 and revisit the stock around $100.
4. Coca-Cola Stock (KO)
Coca-Cola stock has gained 37% in 2026 and is trading around $96. Its latest results showed a 5% increase in global product sales, while its operating profit margin remained around 30%.
However, the stock’s valuation has increased to nearly 28 times expected earnings, compared with its five-year average of 23. Its dividend yield has also fallen to 2.2%, below its historical average of 2.9%.
The three valuation methods estimate Coca-Cola’s value at $74, $75, and $87. Their average suggests a fair value of around $79.
Consider reducing holdings around $96 and look for a better entry near the high $70s.
2 Stocks to Hold
1. Texas Instruments Stock (TXN)
Texas Instruments stock is trading around $295 after gaining approximately 70% in 2026. Its sales, earnings, and cash flow have improved after two weaker years.
The stock trades at around 26 times expected earnings, slightly below its five-year average of 28. Its expected earnings growth also supports the recovery.
The valuation estimate puts its fair value at around $308, close to the current market price.
Hold the stock and watch whether its cash flow continues to improve.
2. Altria Stock (MO)
Altria stock is trading around $75 and offers a dividend yield of nearly 6%. The company has continued to generate returns for shareholders despite declining cigarette shipments.
Its financial position has also improved, with its debt level falling compared with previous years.
The cash flow valuation puts Altria’s fair value at around $81. At the current price, the company needs only around 2% annual cash flow growth to support its valuation.
Hold the stock and continue monitoring cash flow and cigarette sales.