3 Momentum Large Caps to Avoid

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As we enter the last month of the first quarter, a strong February has reversed earlier losses and we are now slightly up so far in 2015.

3 Momentum Large Caps to Avoid
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Many investors have been trying to surf along with market leaders hoping to ride the momentum to market beating gains. That strategy can work for very nimble investors, but be warned: if you own the mo-mo stocks when the wave breaks the losses can pile up very quickly.

Here are three momentum large caps that you should avoid in your portfolio:

3 Momentum Large Caps to Avoid: NetFlix, Inc. (NFLX)

3 Momentum Large Caps to Avoid: NetFlix, Inc. (NFLX)NetFlix, Inc. (NASDAQ:NFLX) is a great example of a mo-mo stock that could quickly lose momentum and those with a short-term focus could see gains disappear quickly

I get the bullish story for the company. They are adding subscribers and series such as House of Cards and Orange is the New Black have become mandatory viewing for many. In fact, those two series are the reason we still have NetFlix in our house.

However the streaming space is getting crowded and NetFlix does not have the market to itself any more. We watch a lot more programming on Amazon.com, Inc.’s (NASDAQ:AMZN) streaming service than we do Netflix in our house. As I am not exactly the definition of mainstream hip, I checked with my 20- and 30-something kids and they tell that is the case for them as well.

NetFlix offers a decent product and I think they will continue to grow going forward. However I do not think they will grow at a pace that justifies paying more than 100X earnings. The stock is up about 40% in the last three months and appears to have gotten ahead of itself at this level.

3 Momentum Large Caps to Avoid: Walgreens Boots Alliance Inc (WBA)

3 Momentum Large Caps to Avoid: Walgreens Boots Alliance Inc (WBA)I have a little more trouble understanding the excitement that has driven Walgreens Boots Alliance Inc (NASDAQ:WGA) up by more than 20% in the last three months.

Investors are excited about the growth prospects outlined in the company’s ‘Next Chapter Plan” but at the end of the day this is a chain of drugstores. A drive down the main drag close to my house shows me that this is still a very competitive industry with a chain drugstore popping up every couple of miles.

I ran some numbers to determine the value of the stock using the most aggressive analyst assumptions I could find and I just cannot come up with any number higher than $50 a share. WGA stock is currently trading at $83.

As reality sets in and the momentum created by the merger completion begins to fade, we could see a sharp pullback in this stock.

3 Momentum Large Caps to Avoid: Vulcan Materials Company (VMC)

3 Momentum Large Caps to Avoid: Vulcan Materials Company (VMC)Vulcan Materials Company (NYSE:VMC) is another stock where the story appears to have gotten ahead of the price. Shares of the asphalt, concrete and cement company have risen by about 23% in the past three months as investors anticipate an upturn in construction activity.

I think construction will be better in 2015 than it was in 2014 but I do not see a huge boom. It will be a measured increase, especially in the key infrastructure and industrial markets.

Even if we have a boom it won’t be enough to justify the current price-to-earnings ratio of 53. Using the most aggressive estimates I could find I cannot come up with a value for Vulcan Materials any higher than $47 a share.

Now trading at $85,  it won’t take much in the way of news to take the wind out of the sails of VMC stock.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/03/nflx-wba-vmc-3-momentum-large-caps-to-avoid/.

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