5 overvalued stocks to sell now
The market is rockin’ and rollin’ toward new highs seemingly every day, and that means a lot of stocks are tagging along for the bullish ride. To be certain, a lot of companies have posted some great earnings over the last year, and many continue soundly beating Wall Street expectations. Stocks like this (Apple (AAPL) being a prime example) have justifiably seen their share price surge. Other stocks, however, have run up a little too far in front of their earnings potential, and that’s the very definition of an overvalued stock that you should sell now.
One way to measure whether a stock is overvalued is to look at the price-to-earnings-to-growth ratio, or PEG ratio. A stock that is considered fairly valued will have a PEG ratio of 1, which simply means the P/E ratio equals the estimated earnings growth.
Traditionally, a PEG ration over 1 means the stock is overbought. Now let’s take a look at five stocks that can be considered overvalued, not just because of a high PEG ratio, but also because each has seen a big surge in value over the past year. The following five stocks could be due for a pullback soon, and that means if you own them, you should think about taking your profits off the table and sell these overvalued stocks now. (Get this FREE report, 10 Top Stocks to Buy Now).
Online retailer Amazon.com (AMZN) stock has posted a most-impressive gain of over 22% just in the past three months, and over the last 12 months the stock is up more than 61%. The stock has a PEG ratio of 3.04, so it can be said to be overvalued here. But the real headwinds for Amazon could come from Apple and Sony (SNE). Both companies have e-readers with greater functionality than Amazon’s Kindle, and if these devices start to take market share from the Kindle, it could be the catalyst investors need to turn the page on AMZN. (Here are 10 Top Stocks to Buy Now)
Green Mountain Coffee Roasters
This coffee stock has been a darling of investors for the past year. Green MountainCoffee Roasters (GMCR) shares spiked over 400% in the past 2 years, giving shareholders a caffeine high all the way to the bank. But recently, many analysts cut their rating on Green Mountain shares to underperform from neutral, citing the coffee seller’s high valuation. With a PEG ratio of 2.67, now may be the time for investors to quit drinking Green Mountain shares. (Here are 10 Top Stocks to Buy Now)
Iconic American motorcycle brand Harley-Davidson (HOG) has twisted the throttle on its stock, climbing nearly 34% over the past three months. Over the past year, the company’s stock has rumbled more than 75% higher. Harley-Davidson just posted earnings that actually beat the consensus forecast, however, it did so on a loss of $42.1 million, and a decline in retail sales of motorcycles. With slowing sales, the company had to rely on cost cutting to make its quarter. However, this cost-cutting can’t last forever, and with a PEG ratio of 2.77, this is one overvalued hog whose ride has likely come to an end. (Here are 10 Top Stocks to Buy Now)
Salesforce.com (CRM) is a customer relations management software maker that helps businesses increase their efficiency. The company’s earnings have been solid over the past several years, and investors have rewarded the stock with a 117% gain in the past 12 months. And while we think Salesforce.com will continue earning money, at a PEG ratio of 9.61, it definitely falls into the overvalued column. If you have profits in this stock, now just might be the time to increase your portfolio’s efficiency by selling your CRM shares. (Here are 10 Top Stocks to Buy Now)
Online search engine firm Yahoo (YHOO) just reported earnings that beat consensus forecasts. Revenue in the first quarter totaled $1.53 billion, certainly a big number, but that represented an decrease of 11.9% over prior year. The lower-than-expected top-line number prompted traders to sell the stock, and in this case, following the smart money might be the prudent thing to do. Yahoo has a PEG ratio of 1.98, and its shares have gained nearly 30% in the last six months. That means that if you’re riding this overvalued rollercoaster, it could be a good time to get off and sell this overvalued stock now. (Get our FREE report, 10 Top Stocks to Buy Now)