Yes, stocks have been going like gangbusters, and the Dow is once again dancing with the 13,000 milestone. The bullish progress and undertow is undeniable.
Yet, for some stocks the bullishness has gotten a little bit out of hand, with some big names just itching for a beat-down. So, if you own or are planning to own any of the following in the very near future, you may want to hold off a bit and wait for a pullback so you can get a better price.
Of course I know how unpopular speaking out against Apple (NASDAQ:AAPL), the world’s most competitive consumer technology company, will make me. It’s nothing personal. It’s not even anything fundamental. Heck, I’ll be the first one to give credit where it’s due: Apple just rocked it last quarter, earning a record-breaking $13.87 per share on red-hot sales of stuff that begins with a lower-case “i.”
That doesn’t mean the stock can hold onto its blistering gains, though.
The fact is, AAPL is more technically overbought than it’s ever been, thanks to a 42% rally since late November. All told, Apple shares are now 31% above their 200-day moving average line, which is almost unheard of (and even less-often sustained) in the large-cap world.
It’s a great company to be sure, but the wildly bullish expectations created by last quarter — and the last year for that matter — have just left the stock no place to go.
I’ve not changed my mind in the meantime. It’s still a great company, but the stock has advanced much faster than earnings have over the past 12 months.
The trailing P/E ratio is now 19.12, which is as pricey as McDonald’s has been at any point in time in the last decade in a normal (not booking a loss) environment. Something’s got to give, and I fear it’s shareholders that could be on the wrong side of that equation.
Contrary to popular belief, Coca-Cola (NYSE:KO) isn’t a bulletproof consumer-staples company. It’s a great one to be sure, but something’s been challenging earnings growth a little more than usual the last couple of quarters, and the buyers who bid KO up so firmly in late 2010 and early 2011 have understandably backed off.
Specifically, the pace that pushed shares 42% higher between mid-2010 and September of 2011 was built on 2010 earnings growth that simply didn’t persist through last year. That’s why the stock has gone nowhere since September. Traders are simply worried (and perhaps a little shell-shocked) that Coke hasn’t been able to do more/better.
So, already on the edge of a cliff and no stranger to prolonged pullbacks, one more misstep could trip this chart up in major way. Another move under the 200-day moving average line at $67.77 could be such a catalyst.
Finally, call it the heebie-jeebies if you want, but I always get nervous when things start to look absolutely perfect for a stock as well as its underlying company. Visa (NYSE:V) — here in the shadow of a 70% run-up since mid-2010 — is giving me the heebie-jeebies.
To be fair, credit card usage is swelling again after a nasty lull in 2009. Perhaps it’s swelling at an unsustainable pace, though. The problem is, the stock has soared as if Visa will undoubtedly keep growing the bottom line at this blistering pace — a risky bet to be sure, and not unlike the one that investors were making on subprime lending back in 2007. Consumers’ incomes are barely up since then, and credit scores are mostly stagnant.
Bottom line? Visa’s growth pace can’t last forever, and the first sniff of disappointment could shatter this house of cards in a hurry, as the expectations far exceed the company’s actual potential.