It is just as important for investors to know when to exit as stock as it is for them to know when to enter. The previous month was good to a number of different stocks and has caused some of them to trade at premium valuations. You never want to be caught holding a stock with a lofty valuation when the market comes tumbling down. Here are a few stocks that look pricey to me.
LinkedIn is overvalued no matter what valuation that you use. A company that is projected to earn 30 cents a share should not trade for close to $80. That valuation is simply insane. I am always wary of stocks with no P/E ratio and trades at 19 times book value. The business model may be attractive to some today but things can quickly change with career websites. Low barriers to entry, no moat, and low earnings per share make this a company that investors should avoid at its current price.
America Online (AOL)
I wrote back in August that investors could speculate on AOL at $11 a share. I have never been high on the stock but at $11, I thought an investor could take a shot at it. Now that AOL is back near $16, I am not so high on the stock. If you speculated on AOL, I think that now is a pretty good time to get out. since you would have almost a 50% gain. That’s not bad for a company who has a business model that is dead.
JCPenney has benefited from the rebound of other companies in the retail sector but the company has not performed well. JCPenney is facing pressure from high end retailers like Macy’s (M) that have started to lower their prices due to the rough economy. The company also has to compete with discount retailers like Walmart that sell clothing. The company has seen earnings decline 36% over the past five years. Last quarter’s results were particularly bad. At nearly $34 a share, the stock trades at almost 24 times earnings which is too expensive for this company.
I think that investors need to be cautious with the Dow Jones Industrial Average over 12,000. I predicted that the Dow would finish the year at 11,500. So, I am expecting the Dow to dip slightly over the next two months. That doesn’t mean that there are no value stocks out there but I would be cautious.