These stocks have surged in 2017. Will they plummet in February?

Royston Wild looks at two stock rockets that could be poised to plunge back to earth.

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Sunny sales figures from the Society of Motor Manufacturers and Traders (SMMT) this week have gone some way to soothing fears over an impending slump in automobile demand in 2017.

The SMMT announced that new car registrations rose 2.9% last month, to 174,564. This was the best January reading since 2005, and has defied other retail indicators suggesting that consumers are dialling down spending after the shopping excesses of the festive period.

The news gave car dealer Lookers (LSE: LOOK) a huge share price shot in the arm, brushing the retailer to heights not seen since last September. In total the company has seen its stock value shoot 10% higher since the start of the year.

But investors shouldn’t be breaking out the bubbly just yet, in my opinion, as signs of rocketing inflation in 2017 could steadily put sales of big-ticket items under pressure. And on top of this, forecourt prices are predicted to rise as sterling spirals lower.

Furthermore, a steady rise in the cost of motoring — from climbing fuel pump prices through to increasing insurance premiums — could also weigh on vehicle demand in the near term and beyond.

Sure, Lookers may not be expensive on paper, an expected 3% earnings rise in 2017 resulting in an undemanding P/E ratio of 8.4 times. However, should expectations of declining car sales come to fruition as the months progress, I believe the car colossus may find itself on the end of a painful share price retracement.

Bank barges higher

Banking behemoth Standard Chartered (LSE: STAN) has also got off to a storming start in 2017, the stock gaining 21% in value since January kicked off and striking 18-month peaks in the process.

However, I believe the emerging-market-focused bank still has a long way to go before it can be considered a robust growth selection, even if brokers have forecast a 136% earnings explosion this year.

Expectations of several Federal Reserve rate hikes have boosted hopes of rejuvenated revenues expansion at StanChart this year and beyond. And those seeking exposure to the UK’s listed banks have also been piling in as the firm’s Asian bias minimises the impact of Brexit on the top line.

But there are still a number of problems that could see the share price shuttling lower again. Standard Chartered still has a long way to go to get revenues chugging in its far-flung regions, particularly as economic turbulence in these regions continues.

And while the institution has worked hard to cut costs in recent years, the firm’s balance sheet can hardly be considered in rude health. Indeed, Bank of England stress testing in November showed “some capital inadequacies” at the business, a situation that could dash hopes of reinstated dividends happening some time soon.

In my opinion, Standard Chartered’s route back to strong earnings expansion is far from assured, and I reckon the firm is undeserving of a sector-busting P/E rating of 20.2 times.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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