3 cult stocks to sell now
As their earnings releases approach, these biggies are poised for a fall.
By Jamie Dlugosch
Earnings season kicks into high gear next week. Before you get left holding the bag, I highly suggest liquidating any cult stock that has enjoyed a meteoric rise over the last several months. The trading is about to get very choppy and it's always smart to lock in profits before the music stops.
Forget about the market hitting record highs. Focus on performance and valuation. Doing so should be quite revealing.
What will pierce the valuation bubble more than anything are earnings. If numbers fail to meet expectations, traders use the disappointment as an excuse to sell and with valuations so high the losses could be very significant.
On the flip side, it takes a huge earnings beat to keep pushing these stocks to even higher heights. Over the last month companies reporting results with premium valuations can be seen stalling at current levels.
We certainly aren't seeing the huge pops that fueled the initial run for these momentum babies.
As such, the wise trader will look to trade these cult stocks on the short side using puts or straight short selling. In the current environment such trading is protected on the downside while providing the biggest upside potential.
Here are three cult stocks I would liquidate posthaste:
The last time I saw more business nonsense was, well . . . in business school. CEO Marissa Mayer and her no-more-work-at-home pronouncement is as likely to boost growth and productivity as discovering that the world is indeed flat. Give me a break.
So far all we have from the new regime is a bunch of hot air. Yahoo's site redesign and focus on mobile advertising sound all well and good, but the proof is in the pudding. With shares trading for more than 20 times expected earnings this year and profits expected to be lower in 2013, this is one stock to liquidate right now.
Research in Motion (BBRY)
The Blackberry is back -- or is it? Research In Motion seems to be rolling its entire future on its new smartphone, but will it stick. Investors bid up this stock immensely in advance of the launch. I’d be skeptical that results can live up to the hype.
The fact of the matter is that Blackberry is way behind the behemoths of the industry. While it may be sad to see this pioneer falter, it would be far sadder to lose money on the stock at these levels. Get out before the floor drops out on this one.
Best Buy (BBY)
So the founder of the company fails to secure financing for a buyout at levels pretty close to where the stock trades today. Hmmm, who has it right – the market and the sheep or the financiers of Wall Street that know a thing or two about value? My money is on Wall Street.
Best Buy is toast. The latest mirage of setting up Samsung stores within the store is nothing more than a sublease arrangement from a lessee that can no longer afford the rent. PC sales should be a bright red warning light for investors to liquidate this stock before it completely collapses.
More from Traders Reserve
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The solid report comes a month after the retailer closed all of its Canadian operations.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.