Stocks to Sell #3: Tesla Motors (TSLA)
Click to Enlarge If history has taught us anything, it’s that valuations don’t matter with Tesla Motors (TSLA). The stock essentially discounts the prospects for a game-changing technology, which means the range of outcomes is so large that current metrics don’t really matter for near-term performance.
Whether the bulls or bears are ultimately right on TSLA stock, the bottom line is that a large portion of its day-to-day movements are dependent on broader investor sentiment.
In the short term, that might be a good thing since the March-April period has been one of the best times of the year to own stocks throughout history. At the same time, however, February has brought substantial gains not just for Tesla (which now stands about $120 above its autumn low), but also other momentum stocks such as Facebook (FB), Netflix (NFLX) and Priceline.com (PCLN), not to mention solar stocks, 3-D printing stocks, and so on.
The fact that all of these stocks have moved higher as a group should give pause to an investor who owns any of the individual names.
The table below shows the distance of the momentum favorites from their 200-day moving averages as of the close on Tuesday, Feb. 25. Experienced investors know that “too far, too fast” isn’t a valid reason to sell. However, these are sizable numbers that indicate a risk-reward profile that’s less favorable than it was just a few weeks ago.
Let these stocks run as far as they can, but be ready to hit the sell button as soon as the tide turns. With such strong returns in the books, it just doesn’t make sense to get greedy.
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