3 absolutely, positively must-sell stocks

2 have broken business models, 1 is clearly overvalued.

By InvestorPlace Nov 1, 2012 12:29PM

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Arrow Down copyright Kyu Oh, Photodisc, Getty ImagesBy Lawrence Meyers


No matter what, you can always find stocks that need selling.


Oftentimes, they are companies that are wildly overvalued. If you bought in early, you should be taking profits or setting stop-loss orders. If you came to the party late, it's important to recognize that the stock you're holding might have seen its momentum highs and it's time to get out.


Trust me, I've been the sucker many times.


Two of the three stocks I'm mentioning today, however, have broken business models. You need to discard them because, despite what bulls say, these companies do not have a future. The other stock is your average run-of-the-mill momentum play that has seen its highs and will fall further from here, though the company likely will be around for the long haul.


Groupon

Daily-deals site Groupon (GRPN) might only be at $4 per share, but if you're still holding it, don't wait any longer to sell. Although Groupon has some brand value as a first-mover, in truth there ultimately is nothing special about this company. Any number of local competitors can spring up. If Google (GOOG) wants to get into this business in an even bigger way, it can and will, and blow Groupon away with marketing dollars. The same goes for Amazon (AMZN).


Plus, early Groupon users have learned that they can't just buy everything, because they won't use some coupons and will end up taking a loss.


This is not a proprietary business, and you want to stay away from such a company when it hasn't established market dominance.


Two pieces of news about Netflix (NFLX) in the past week drove the stock from $60 (after a bad earnings report) to $80 -- the first concerned rumors of a Microsoft (MSFT) purchase, the second was that Carl Icahn has taken a 10% stake in the company. That's good if you want to get out, because both news items are actually bad developments.


First, there's no way Microsoft will buy Netflix. Why would it buy a company whose only line of business will soon be low-margin content streaming, with $5 billion in content obligations, and competitors with much deeper pockets -- like Amazon -- breathing down its neck? (Microsoft owns and publishes Top Stocks, an MSN Money site.)


Second, Icahn has a very mixed track record. The only other entertainment entity he has dabbled in was Lions Gate Entertainment (LGF), and he was totally rebuffed by the board in trying to bring about a sale or management changes. He attempted a proxy fight to take over now-defunct Blockbuster in 2005 that could not have worked out, given that Blockbuster, like Netflix, was a one-trick pony that had no future.


Chipotle Mexican Grill (CMG) is the overvalued player in the group. There's nothing wrong with the business; it's doing just fine. However, Chipotle's growth has slowed significantly.


With restaurant concept stocks, the pattern is always the same. There's a huge burst of interest, the stock skyrockets as the concept rolls out in a big way, and growth numbers climb to the stratosphere. Then, growth eventually slows from white hot to merely robust, the earnings multiple naturally contracts, and the momentum days are over.


Chipotle is in the latter part of this story line. Despite soaring profits the past two quarters, CMG shares have endured two consecutive post-report beatings as profits have failed to meet sky-high investor expectations. The stock is now down 25% year-to-date, yet still trades at 30 times trailing earnings and 25 times forward earnings.


We've been given fair warning. Now is the time to get out.


As of this writing, Lawrence Meyers owned December 80 Puts on Netflix.


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20Comments
Nov 1, 2012 1:49PM
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Are you EVER going to STOP bashing NetFlix.  Every article MSN writes about this company is filled with spite.  Did you lose an investment somewhere along the way?

I've been a loyal customer of NetFlix since the day they started and have never looked back.  The service is awesome, the DVDs arrive on time, the streaming is flawless and there's access to movies I cannot find anywhere else.  So they raised their prices, big deal.  They were too inexpensive for what they offered.  Time Warner raises their prices for their crappy service every month, go bag on them!

Get a grip.
Nov 1, 2012 7:38PM
Nov 1, 2012 3:32PM
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EMPLATE..Did you ever see MSN do anything but bashing,,,it's their disgusting style and getting worse.  But of course they prop up the Whitehouse cover up on Benghazi
Nov 1, 2012 4:39PM
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Elmo,

Right.  Benghazi proves that the current administration is not only willing to spend other people's money to get votes, but is also willing to spend other people's lives for re-election. 

Nov 1, 2012 6:03PM
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This was a piece written in order to attempt to manipulate the stock market. The auther is either shorting the stocks mentioned or has friends who are. We need better regulation in order to protect honest investors.
Nov 2, 2012 11:42AM
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The Feds have kept interest rate atificially low...very low! Thus, the interest payment on our $16.2 TRILLION (and climbing a trillion $ a year)) debt is artificially low. What happens when interest rates climb to 4-6% maybe by 2014 or mid 2015? Interest payment alone will be over $800 billion! Goodby descretionary spending and hello tax increase and inflation!
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My experience is that the so called experts that say what to do with stock probably lose as much as they gain.  They make their money writing stupid article.
Nov 2, 2012 10:46AM
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You are worried about CMG being overvalued in an article that mentions AMZN??? Seriously? That is laughable. Don't get me wrong, a forward P/E of 25 is nothing to get excited about. However, AMZN has a forward P/E of 131.79 with negative income growth (vs CMG which although slowing is still positive growth)!!! I'll give you two MUST-SELL stocks... AMZN and LNKD (forward P/E of 296.83). Yeah LNKD has huge positive growth but it is a new company and 250% of $0.15 is still pocket change. New companies with little income are a lot easier to grow at huge rates. It isn't sustainable though. I don't own CMG and I have no plans to buy any but it certainly wouldn't be anywhere near the top of my must-sell list. What a joke.
Nov 2, 2012 11:35AM
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MSN promotes cramer as a stock picker so what would you expect?
Nov 2, 2012 8:37PM
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Wise up. NetFlix is old tech. The same can be said of coal fired train engines. Their came and went.
Nov 1, 2012 7:18PM
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No problem; only banks and insiders can afford to play the market ... 
Nov 1, 2012 8:31PM
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The Dow is up 5100 points since Obama took office.With most of the media being right

wing these days you`ld think the market was down 80%.The jobs report is another

sign the economy is growing leaps and bounds.These are the good old days.

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