Stocks we would avoid
02-16-07: As the DOW continues to set new record highs, it is easy to forget how quickly the gains we have worked so hard to obtain can instantly vanish in a matter of days. This is fundamentally why we believed it is important to always evaluate your current position so corrective measures can be taken as market events unfold.
One of the biggest mistakes most individual investors made (including us) during the dotcom hay days was allowing our greed to affect our judgments. Some common mistakes included, not selling JDSU when it was at $400 per share or not being able to resist the temptation to buy Amazon.com (AMZN) even when it was at $500 per share despite knowing it was against our better judgments. We are determined to help individual investors avoid these mistakes.
Instead of focusing on which stocks to buy as normally do, we would like to provide a list of stocks to avoid. We realized market condition can change, which could negate our list, but for now, here are the companies we would avoid:
Salesforce.com (CRM). Despite impressive growth and decent earnings, we would avoid CRM as the valuation and expectation for this company continues to defy logic. CRM is a classic overvalued dotcom stock. For some reason this stock keeps going up. Either we are completely wrong or institutional investors are in a quagmire and have no choice but to keep hyping the stock. Trading with a P/E of 954, this is one stock that could burn you. The fact that analysts keep hyping this stock is more reason to avoid CRM.
Bidu.com Inc. (BIDU). Despite reporting a 400 percent quarterly profit compared to last year, BIDU failed to meet expectation as the company guided lower for 2007. The stock dropped almost 8 percent today. The primary reason for the sell off was likely due to institutional investors taking immediate action to cover their over-estimated growth. Trading with a P/E or 141, this is still a very risky stock. Even Google (GOOG) which continues to report stellar earnings is less expensive than BIDU. While we believed BIDU is a growth company with great potential, this stock should not be trading more than $80 per share (even that is generous).
Advanced Micro Devices (AMD). We have given up on this company. Although it is trading at $14 per share and may seem like a good deal, do not take the bait. We keep hoping Intel or some other company would buy AMD and put this company out of its misery. This stock will never amount to anything. Intel will continue to dominate and poor AMD will always be in last place when it comes to microprocessors. The recent acquisition of ATI Inc. was AMD’s last ditch effort to remain a player. However, the integration of ATI seems to be causing internal issues. We see no catalyst for growth with AMD.
Update: 4-19-07: There are now rumors AMD could be acquired by a private equity firm. The stock is up about 5% in after hours. In our view, this is a careless of managment to be announcing this information when thy have not yet identified an actual buyer. This temporary surge in AMD share is just that.. temporary. Careful, do not fall for this.
JDS Uniphase Corp. (JDSU). Forget about any possibility of a comeback for this company. Run for the hills if someone approaches you about JDSU. This company has failed miserably. We see no catalyst for growth. Instead, we see slow death for JDSU. The company keeps borrowing so they can remain in business. We would say JDSU is comparable to someone borrowing 100 percent of their home equity and hoping to pay it back without having a steady job. As a New Yorker would say, forget about it! Profitability appears out of reach for JDSU.
