Protect that profit and sell AMZN, DJ and DELL
5-10-07: The down side to the current bull market is there are little obvious bargains. In our view, the current environment has most stocks priced for perfection where the downside risk is great. This market cannot continue to rally without some bumps along the way. We fear a correction is near. Therefore, we are shifting our strategy to protecting the recent profits. Here are some stocks we believed should be sold before everyone realizes it is over priced.
Amazon.com (AMZN): Last quarter profit was great, that we agreed. However, we do not believe this company deserves its current valuation. Trading with a P/E of 106 makes AMZN a very risky stock. Since Q1 earning was released a few weeks ago, this stock has gone up about 50 percent. In our view, the smart thing to do would be to sell this stock if one had bought it before earnings. We are not saying one should sell everything, but taking some off the table would be smart. In our view, we do not expect this stock to keep going up as the stock has already priced in this year’s earnings. Avoid the temptation to buy at the current level of $62 per share. If this market does go through a correction, AMZN would be very vulnerable.
Dow Jones (DJ): The Company recently received a buyout offer from News Corp. (NWS) for $60 per share. In our view, it was indeed a generous offer. The problem is DJ is controlled by the Bancroft family and it does not appear they are interested in selling. While the $5 billion offer is very generous, we highly doubt the Bancroft family will sell the company. They have little reasons to sell as they are doing well, generating respectable profits on its own. In our opinion, investors should sell DJ at this level. Although Murdoch will do what ever he can to convince the Bancroft family to sell (including offering a seat on the board), we remain doubtful they will sell. Take the money and run!
Dell Inc. (DELL): We are not exactly sure why this stock is at $26 per share. Perhaps there are speculations that a deal might be on the horizon. We have heard HP might be interested in buying, but that is just a rumor. Nevertheless, the long term outlook for Dell is not good. From accounting issues to poor PC environment, we believed Dell current price is not justifiable. Take this opportunity to cut your losses or take the small profit and move on. This company no longer has what it takes to deliver the same level of return to shareholders. The PC market is saturated; prices and margin will continue to fall.
