What To Sell If The Going Gets Tough

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 |  Includes: AAPL, CRM, ET, GOOG, TSLA, WDAY
by: George Kesarios

While I have called that markets will continue to go up, markets do correct at some point. Even if someone gets the long term picture correct, markets and stocks will correct before they get there. And when markets correct, it's not a bad idea to keep some cash on the side, especially if you are a short term investor.

Salesforce.com (NYSE:CRM) announced that it is buying ExactTarget (NYSE:ET) for a 53% premium for a total value of $2.5 billion. While some analysts said this was an expensive deal, in reality ExactTarget is dirt cheap compared to Salesforce.com.

In fact, I would say that ExactTarget lowers the bubble valuation of CRM by a bit.

P/B

Price/Sales

PE

Forward PE

Profit Margin

Operating Margin

Salesforce.com

9.8

7.5

-

64

-10.00%

-4.00%

ExactTarget

5.5

4.83

-

-

-9.00%

-8.40%

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CRM is one of those stocks that don't really need any reason to correct. It can do so at any time without notice and on no news. The reason for this is its valuation. Overall however, I think the ExactTarget acquisition is positive for CRM but the stock is so expensive, that it does not really matter.

As you can see the chart below, the stock has actually corrected quite a bit over the past several weeks, and one might make a case of buying it, because it has corrected so much. While you may buy it for a short term trade if you feel lucky, don't get sucked into becoming a long term investor of this stock for the long term. The same applies to other companies in the space like Workday (NYSE:WDAY).

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Another very expensive stock you don't want to be invested in, if the market corrects, is LinkedIn (NYSE:LNKD). I am not sure what kind of formula sell-side analysts use to value LinkedIn, but whatever it is, it makes no sense in my book.

The stock has corrected quite a bit ever since the company's last quarterly report, however please note that this stock is so expensive, it can correct a whole lot more (like $100 or so) and still be expensive.

P/E

Forward P/E

Price/Sales

P/B

Profit Margin

Operating Margin

LNKD

634

77

16

18

3.50%

6.30%

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Another very high risk and high profile stock these days that can also correct by a whole lot is TESLA (NASDAQ:TSLA). My beef is not with the company or the products, but as with the other two stocks, its valuation.

While TESLA has many things going for it and I don't doubt it might become a very big company in the future, the thing is that much (if not most) of this future success is already baked in the cake (in the price of the stock).

P/E

Forward P/E

Price/Sales

P/B

Profit Margin

Operating Margin

TSLA

-

91

11

63

-31.00%

-33.00%

Click to enlarge

The stock has corrected quite a bit over the past several days from its recent high of about $115. Again, according to my book this stock is a contender for a very big correction, irrespective of whether the company continues to good very well and executes perfectly. And if TESLA does correct by a whole lot, please note it will not have anything to do with the company, but with the market.

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Finally, I think Google (NASDAQ:GOOG) is also a stock that can take a big hit if the market gets ugly. Granted that Google has a lot going for it and it has great potential, but so did Apple (NASDAQ:AAPL) at the $700 mark.

P/E

Forward P/E

Price/Sales

P/B

Profit Margin

Operating Margin

GOOG

26

16

5.4

3.8

20.00%

-25.00%

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If push comes to shove and institutional holders have to sell, then they will sell what they can, not what they want. But if Google does correct -- assuming we get a good size market correction -- contrary to most of the stock listed above, it will be a buying opportunity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.