In a low volatility environment, investors usually undertake risk and in a high volatility environment, investors reduce risk. In a low volatility environment, investors throw investing rules out the window and invent new rules to try to explain their greedy nature, only to recall these rules when they become sober again, and remember why paying high sky multiples you will not make you money long term.
However, when any market is correcting, then all stocks correct, because of institutional outflows. Sometimes even the cheapest stocks get punished. When the selling is all over, there will be opportunity, however in the mean time, it pays to be defensive. Like I said several days ago, it's time to take some money off the table folks.
3D Systems (NYSE:DDD)
3D systems is not just an expensive stock, it's a very expensive stock. Currently the stock is trading at 97 times trailing earnings with a forward P/E of 33.46 (if analysts have it right). And although the company is growing very fast, the question is if the price of this growth is worth it.
Sales growth and quarterly earnings have stalled as of late with quarterly earnings actually being negative y-o-y by 5%. The stock, however, somehow seems to keep going higher, making the stock simply more expensive.
DDD Revenue Quarterly data by YCharts
On a forward looking basis, analysts expect $1.06 in earning this year and $1.30 for 2014, with the average 12 month price target for the stock of $52. The question is, is it worth it? Would you invest in your own business with such a high Price/Sales ratio?
The ExOne Company (XONE)
Another high flyer in the 3D space is ExOne. Analysts are expecting $50 million in revenue for 2013 and about $74 million for 2014, with zero earnings this year and about $0.56 for 2014. At the same time, while the average 12 month price target consensus is $50.75, the current price is already at $51.14. Is this stock worth buying and holding at today's prices? I say no, it is not, and I recommend anyone having it to sell it.
Groupon, Inc. (NASDAQ:GRPN)
Groupon is a company I recommended right at the very bottom back in November of 2012. Since then the stock has about tripled. I have to admit I have not really been covering it since the $5.60 level, because in all honesty, I thought it could not have gone much higher. But here we are, the stock has gone a lot higher, even higher than where most analysts thought it might. The current 12 month price target as per analysts for Groupon is around $6.60, but the stock is already at $8.
And while the company has a new CEO and things seem to getting along, and analysts have upgraded the stock recently, the question is if the stock is currently worth the price investors are paying for it.
For one thing the company is still not making any money and revenue has stagnated for several quarters now. Most of all, if I am going to pay for any stock 27 times forward earnings, one would expect that sales growth -- at the very least -- would be extraordinary.
Earnings expectations for 2013 are around $0.13 and about $0.29 for 2014 and sales growth is projected to be about 10% by analysts. In my book, 10% sales growth is not extraordinary.
In addition, given the volatility in the markets and the fact that there is a good chance for a major correction, I would be a seller of the stock and either buy it again after a correction, or buy something else that has much better fundamentals than Groupon.
Intel is not an expensive stock by any means. However, just like many U.S. big caps, it's in just about every institutional and mutual fund portfolio there is. So one reason to sell Intel might be if you think this market will correct further and the downside is not over yet.
Another reason to sell Intel -- or any stock for that matter -- is if the risk of buying or holding on to it is not worth the risk. The forward 12 month price target for Intel as polled by Thomson/First Call is $23.76. Just to be fair, I also double checked with analystratings.net and the average target price there is $24.06.
Now please don't think there is some kind of conspiracy on Intel. This is one of the most covered stocks in the industry. If the average consensus for Intel's price target is around $24 a share, why should I hold onto such a stock?
So given that the chances of a further market correction are heightened, and given that the target price of Intel is the current price of the stock on the tape, I can't find too many reasons to be a holder of Intel, unless of course you have a much more bullish opinion of the stock yourself.
Business, Not Personal
What is true of Intel can also be said for any other stocks out there, including but not limited to Cisco (NASDAQ:CSCO) and Corning (NYSE:GLW). Both of these stocks are by no means expensive, but if this market continues to correct, these stocks will also sell-off, simply because they are in just about every mutual fund and institutional portfolio there is.
Remember this is one of the reasons I have outlined for Apple's (NASDAQ:AAPL) correction in past articles. That is, Apple is in just about every institutional portfolio out there. And when the going gets tough, money managers sell what they can and what is highly liquid and ask question later. I can find no other logical reason for Apple's continuing correction. And If I am correct, then what is true for Apple can also be true for many other stocks.