by Tom Taulli | August 9, 2012 9:55 am
The old saying goes: “Bulls make money and bears make money, but pigs get slaughtered.”
It’s pretty good advice. As seen over the past year, many high-fliers have imploded. Streaming video giant Netflix (NASDAQ:NFLX) and K-Cup purveyor Green Mountain Coffee Roasters (NASDAQ:GMCR) were both once-hot momentum stocks that put a lot of money into a lot of pockets.
However, investors who waited too long to get out were fleeced, as each have shed roughly 75% in the past 52 weeks after showing some glaring weaknesses.
Of course, what matters now is catching those pigs before they implode. What stocks might be worth unloading right now? Here’s a look at five:
Back in April, AOL (NYSE:AOL) scored $1.1 billion in a patent sale to Microsoft (NASDAQ:MSFT) — a move that certainly juiced up the stock price, eventually lifting AOL to its current 126% gains for 2012.
The plan is to return the windfall to shareholders with large stock buybacks. No doubt, this will provide stability for the stock price, but it won’t help long-term growth.
AOL’s core business remains weak. The company’s display ad business continues to feel pressure, especially from players like Facebook (NASDAQ:FB). The Patch local website platform is taking time to get traction. And the content properties — such as TechCrunch and Huffington Post — are seeing slowing traffic with growth at just 4% in the latest quarter.
Buybacks should keep AOL from plunging, but that’s the best you can expect — shares likely will meander without any catalyst to boost the stock.
Even after Wednesday’s 5% drop, shares of Expedia (NASDAQ:EXPE) still are up 92% for the year.
The company, which operates Hotels.com and Hotwire, has been investing aggressively in Europe and Asia, and it also has a growing mobile business. Plus, it recently beat the pants off analyst expectations for Q2 earnings, helping fuel its run.
However, what’s disconcerting is what caused Wednesday’s short drop — namely, earnings reports from Priceline.com (NASDAQ:PCLN) and Orbitz Worldwide (NYSE:OWW) — showed that the online travel space is vulnerable to an economic slowdown.
So far, the weakness is been primarily in Europe, but it easily could spread to the shaky U.S., which is where Expedia gets a majority of its revenues.
Fabless semiconductor company Mellanox Technologies (NASDAQ:MLNX) has been on a tear this year, up 240% in just more than seven months!
The company builds technologies that help improve the storage capacity for datacenters — a key to the megatrends of cloud computing and Big Data.
In the latest quarter, sales spiked by 111% to $133.5 million and earnings came to 99 cents. The third-quarter outlook also was robust, with sales expected to rise by 124%.
So why should you jump off the bandwagon? Mellanox’s stock is trading at a nosebleed valuation of 84 times trailing earnings and 26 times forward earnings. While those numbers are justified in light of its growth, MLNX could see a big dip if it shows any signs of decelerating. Yes, Mellanox deals in the trends of the future, but it’s certainly not invulnerable should the global economy continue to show signs of weakness.
Lumber Liquidators (NYSE:LL) — a specialty retailer for hardwood flooring — isn’t your typical growth stock. Its gains — roughly 140% this year — are pretty atypical, too.
LL has been helped by a turnaround in the residential real estate business, as well as the growing popularity of hardwood floors for their look and durability.
But Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW) are elbowing into the space. And like Mellanox, trailing and forward P/Es of 34 and 24 are a bit on the steep side, too. With LL frequently setting all-time highs, it might be time to collect a little money in case the company gets tripped up.
Seagate Technology (NASDAQ:STX) has been a tech-stock doubler in 2012, a tripler since 2011, and a good turnaround story.
Seagate is in recovery mode from heavy flooding in Thailand last year, which destabilized disk drive factories. The company has been steadily increasing prices on its products, and also buying back shares.
However, the stock price clearly reflects the positivity — and there’s still some headwinds to deal with. The company will be bracing itself against new competition as it moves into the crowded market for enterprise solutions. Another negative trend is the growth in tablets, which is taking market share away from traditional laptops and desktops. The result likely will be more pressure on hard drive demand.
The stock still trades at a low 5 times earnings, though, and STX still yields a plump 3.9% in dividends despite its rampant run-up, so it might not be time to fully exit Seagate — but you might want to at least lock in some of the profits while you can.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.
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