Overvalued Stocks: Take the Cash
5-31-07: One of the most of difficult decisions one has to make in trading stocks is deciding when to sell. This is especially difficult during a bull market when the indices keep setting new record highs. People tend to coast during a good market, not really managing their portfolio as they would during a bear market. We see headlines such as "buy high and sell higher" as investors become complacent. The mentality is, as long as the stock appreciates, there is no need to make adjustments. This mentality will only lead to trouble.
We believed investors should be more vigilant during a bull market and do a better job of ensuring their return on investment does not vanish over night. Here are some stocks we believed has become overvalued.
Salesforce.com (CRM): Salesforce.com has great products. It is a pioneer in delivering Enterprise level application over the web. While its competitors such as Siebel and other CRM providers struggle, CRM continue to do well because the company provides a low cost customer relationship management solution. Our concern with CRM is its valuation. The stock is trading with a P/E of over 4000. That's right, 4060 as of closed 5/30/07. This is insane valuation (The recent rumor that Google (GOOG) might be interested in buying CRM further the hype). CRM is now trading near the $50 range, definitely overvalued. Those that might be interested in jumping in should really think twice. This would be one stock we would sell without hesitation.
Apple (AAPL): The iPhone hype is pushing Apple shares up. Today it is trading at $122 per share. Couple of weeks ago, it was in the mid $90. While we believed Apple is a great company and has been great at delivering desirable products, the stock is now overvalued. We would say this stock is priced for perfection. Apple better deliver above expectation this quarter, otherwise watch out. In our view, there is simply too much hype surrounding AAPL.
Amazon.com (AMZN): Here is another example of over hype stock. As some might recall, AMZN posted a great Q1 number, beating expectations slightly. The stock surged from $37 to almost $70 per share in a span of one week. AMZN is definitely overvalued at current level. Investors should take this nice gain before it vanishes. We realized it is hard to sell a winner, but if you take a look at the company's numbers and fundamentals, it is easy to see AMZN current value is unjust.
Comments
Have your feelings changed in regards to VLO and HAL?
Posted by: dazraf | May 31, 2007 11:31 AM
We continue to remain bullish on HAL. It is still undervalued at $35. We see HAL at $40.
VLO will make ton of money, no doubt. However, it is approaching a level that would be prudent to take some off the table.
Posted by: iBooyah | May 31, 2007 12:21 PM
thanks for the recommendation on NTAP. any thoughts on MO? it had a recent hit too and is trading at close to 52 wks low .
Posted by: Arsenic | May 31, 2007 04:42 PM
Any thoughts on the recent actions in the market?
Posted by: dazraf | June 13, 2007 05:00 AM