After a very volatile year, finding stocks to sell in 2011 sounds like a pretty easy task. But don’t kid yourself — some good companies have been unfairly oversold, and there are a lot of bargains out there. And now that the market has seen a sharp selloff this summer, there is a chance that many picks already have seen the bad news “priced in.”
So how do you decide between stocks to sell in 2011 and stocks to hold in the hopes of a rebound? Simple: Think of yourself as an investor who doesn’t own a thing, then look at your current holdings as if for the very first time.
Would you buy those stocks based on the current news, at the current price? If so, then the picks are worth holding onto — no matter how bad your losses.
But if you look impartially at your portfolio and find yourself turned off by the idea of ownership, it’s time to sell these stocks in 2011 before it’s too late.
Here are three stocks to sell in 2011 before the turn of the new year:
Stock to Sell #1 — Chipotle
I know, you like their burritos. I do too. But Chipotle (NYSE:CMG) shares are overcooked, and this company is a stock to sell in 2011. Chipotle is in the vein of Krispy Kreme (NYSE:KKD) or Starbucks (NASDAQ:SBUX), both of which hit walls after overexpansion.
Right now, Chipotle has a forward P/E that is a nosebleed 35.5. On the margins front, almost every ingredient the company uses is suffering rampant inflation — for instance, nationwide beef prices are up 8% to 9% in 2011. To boot, while companies like McDonald’s (NYSE:MCD) are well-oiled food manufacturing machines, Chipotle hasn’t even heard of portion control to protect margins. On the growth front, there are no menu innovations or promotions to spur growth, just opening more stores. Also throw in the fact that a 900-calorie burrito is hardly health food and the fact that an $8 lunch is hardly a bargain given value menus at competitors. The stock is off about 9% from its Sept. 20 peak near $350 per share, and there’s a good chance it only has farther to fall.
See also: 10 Best Stocks to Own Now
Stock to Sell #2 — JPMorgan Chase
JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon is considered the only competent banking CEO by some investors. To others, he’s a hard-headed banker who is every bit a part of the financial sector’s hubris. Case in point, Dimon calling new global bank liquidity rules as “cockamamie nonsense.” The fact is that even though JPM might be one of the strongest banks out there — perhaps the strongest one — you can’t fight city hall.
There are 17 lawsuits (so far) filed on behalf of Fannie Mae and Freddie Mac aiming to get back $196 billion tied to toxic mortgage-backed securities. In the first half of 2011, JPMorgan generated 12% less income from interest — a $2.7 billion decline — and many experts are expecting the investment division at JPM to deliver as much as 30% less revenue in the third quarter thanks to a volatile market and stricter regulations. JPMorgan is trading near a 52-week low of around $28 because its outlook is bleak — and it’s only wishful thinking to assume that will change anytime soon.
Stock to Sell #3 — Salesforce.com
If I read one more cloud computing love story, I’m going to be sick. Salesforce.com (NYSE:CRM), my third stock to sell in 2011, recently has signed contracts with the federal government to move much of Uncle Sam’s data onto “the “cloud,” and that’s obviously a great deal. However, CRM shares are overvalued at a stunning 600 times trailing earnings — and the forward P/E is just as ugly, at 70.
With Salesforce, it seems investors are having a relapse to the dot-com days where dreams mattered more than the data. Shares peaked at $160 or so in July and have slumped to around $125 recently — a 20% flop — as jittery investors have started to think more critically about the market and about stocks like Salesforce. Barring another massive government payday, it’s unlikely that CRM stock will get back to those levels soon.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.