When you’re hot, you’re hot, and this market has been on fire in 2013.
Year-to-date, the Dow Jones Industrial Average has spiked more than 16% while the S&P 500 is close behind with gains just under that. While these big gains in the major indices are indeed impressive, even more impressive are some of the big-name stocks that have fueled this rally higher.
But big gains often mean it’s time to sell … as is the case for these three high-fliers.
Click to Enlarge I’ve written a lot lately about the gains in luxury electric vehicle maker Tesla Motors (NASDAQ:TSLA), as the company and the stock have been a virtual highlight reel for this bull market. Shares of TSLA are up an incredible 94% over the past month, and year-to-date the stock has soared some 150%. And while I remain a Tesla bull for the long term, there’s no doubt that the stock will have a tough time keeping up this kind of momentum.
So, should you sell and take profits in TSLA now? If you’ve held the stock over the past several months, it wouldn’t hurt to bank some of those huge winnings. Massive runs higher in a stock like this don’t last forever, and at some point we’ll see shares settle down and possibly even pull back. While maybe not to the level we’ve seen in Apple (NASDAQ:AAPL) shares over the past eight months, a substantive pullback certainly isn’t out of the realm of possibility.
Click to Enlarge Another stock that’s soaring on big buying momentum is search engine giant Google (NASDAQ:GOOG). In early trading this morning, shares jumped nearly 3%. More importantly, they breached the psychologically significant $900 mark for the first time ever. The stock now trades about 19% above its long-term, 200-day moving average, and in just the past four weeks the stock has been bid up more than 16%.
I am a big Google fan and I’ve used its search engine product just about every day for both business and personal research since the late 1990s. I suspect the future is bright for this company and its shares; however, if you’re currently riding the huge wave in the stock, then I say take at least a little of that profit off the table and go buy yourself something you’ve always wanted.
Click to Enlarge Our final profit-taking candidate is a company that’s had as much drama and tumult as the movies it streams and the DVDs it delivers to consumers. That company? Netflix (NASDAQ:NFLX).
This stock has long been a trading vehicle for the fast money, as its popular product and mainstream familiarity has added to the volatility in the shares. That’s not good if the stock is tumbling the way it did in the latter half of 2011 (unless you were short NFLX). Now, however, the tables have been turned, with the stock vaulting over 160% so far in 2013, including more than a 4% climb this morning alone.
The volatile nature of this trading vehicle, as well as its huge jump in price in mid-January, is all the excuse you need to trim your profits if you got them — especially if you own the stock in the $60 to $100 range.
To be clear, I suspect all of these stocks — TSLA, GOOG and NFLX — have the potential to keep stampeding along with the rest of the bulls. However, prudent traders and investors know that if you’re sitting on gains of 30%, 40%, 50% or even bigger gains, there is nothing wrong with taking some of your chips off the table to ensure you keep much more than the capital you’ve put at risk.
Here it’s wise to remember the adage on Wall Street that says: “A man never went broke taking profits.”
As of this writing, Jim Woods was long TSLA and GOOG. He isn’t long NFLX, but he does subscribe to its streaming service.