Earnings season really kicks into high gear next week. Before you get left holding the bag, I highly suggest liquidating any cult stock that has enjoyed a meteoric rise over the last several months.
The trading is about to get very choppy and it’s always smart to lock in profits before the music stops.
Forget about the market hitting record highs. Focus on performance and valuation. Doing so should be quite revealing.
Some of the most popular momentum stocks, including Netflix (NASDAQ:NFLX), Best Buy (NYSE:BBY) and Yahoo (NASDAQ:YHOO), are poised for a fall.
Other names including Hewlett-Packard (NYSE:HPQ), Salesforce.com (NYSE:CRM) and Google (NASDAQ:GOOG) are also looking at bit toppy at the moment.
What will pierce the valuation bubble more than anything are earnings. If numbers fail to meet expectations, traders use the disappointment as an excuse to sell and with valuations so high the losses could be very significant.
On the flip side, it takes a huge earnings beat to keep pushing these stocks to even higher heights. Over the last month companies reporting results with premium valuations can be seen stalling at current levels.
We certainly aren’t seeing the huge pops that fueled the initial run for these momentum babies.
As such, the wise trader will look to trade these cult stocks on the short side using puts or straight short selling. In the current environment such trading is protected on the downside while providing the biggest upside potential.
Here are three cult stocks I would liquidate posthaste:
The last time I saw more business school nonsense was, well . . . in business school. Marissa Mayer and her no-more-work-at-home pronouncement is as likely to boost growth and productivity as discovering that the world is indeed flat. Give me a break.
So far all we have from the new regime is a bunch of hot air. Yahoo’s (NASDAQ:YHOO) site redesign and focus on mobile advertising sound all well and good, but the proof is in the pudding. With shares trading for more than 20 times expected earnings this year and profits expected to be lower in 2013, this is one stock to liquidate right now.
Research in Motion
The Blackberry is back — or is it? Research In Motion (NASDAQ:BBRY) seems to be rolling its entire future on its new smartphone, but will it stick. Investors bid up this stock immensely in advance of the launch. I’d be skeptical that results can live up to the hype.
The fact of the matter is that Blackberry is way behind the behemoths of the industry. While it may be sad to see this pioneer falter, it would be far sadder to lose money on the stock at these levels. Get out before the floor drops out on this one.
So the founder of the company fails to secure financing for a buyout at levels pretty close to where the stock trades today. Hmmm, who has it right – the market and the sheep or the financiers of Wall Street that know a thing or two about value? My money is on Wall Street.
Best Buy (NYSE:BBY) is toast. The latest mirage of setting up Samsung (PINK:SSNLF) stores within the store is nothing more than a sublease arrangement from a lessee that can no longer afford the rent. PC sales should be a bright red warning light for investors to liquidate this stock before it completely collapses.