Stocks I Would Sell

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 (LNKD)

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 (JCP)

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.

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4 Responses to “Stocks I Would Sell”

  1. avatar sfi says:

    Mark,

    you picked stocks on different ends of the spectrum. I think the jury is still out on LinkedIn. It gets a high multiple of revenue (the market doesn’t care about earnings now) because of the possibilities of this company some of which may not be known. If you applied the same logic to Amazon (comparing its value to booksellers of the day) you would be way wrong because they became more than a book seller.

    This doesn’t mean that LinkedIn is even a good investment, but the logic of the market right now is concluding that it is. We shall see.

    sfi

  2. I am not the biggest fan of LinkedIn either. I find it to be sort of useless. I never hear people in real life asking for my “LinkedIn” information. Maybe I’m hanging around with the wrong people, but I don’t find it that useful.

  3. avatar JT says:

    I’m definitely with you on LinkedIN. I just can’t see where it has a real, durable competitive advantage against other social networks. Sure, it’s supposedly high-value because it’s all about professional networking, but I don’t see why…say, Facebook, can’t lay claim to the same model.

  4. Speaking as a finance professional who has worked for multiple fortune 500 companies, we all have linked in accounts, but they arent overly useful for getting hired or as an online resume. I think they have improvements to make, and really need to integrate their service with larger employers and perhaps contract companies. As JT said, Facebook can easily mimic their model… the same can be said for Groupon, so steer clear of their stock when it comes by…

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