6 Overbought Food-Related Stocks

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 |  Includes: CBOU, GMCR, PEET, SJM, UNFI, WFM
by: Rougemont
The food-related stocks below recently have been in a strong uptrend. They have solid businesses and growth potential, but they have reached overbought levels and have high PE ratios. With so many cheap stocks available now, it makes no sense to buy these stocks at their current price levels. In fact, you may want to consider taking profits in some of these names and buying them back on corrections or rotating into some stocks with lower valuations.
These shares have high PE ratios, are trading above their 50 and 200 day moving averages and appear overbought. In particular, I am looking at the Relative Strength Index (RSI) levels which can indicate overbought conditions. Stocks with an RSI rating around 70 can signal that the shares are overbought and due for a correction. To learn more about RSI, read here.
Here are the six companies, which all have RSI levels around 60 or higher:
Whole Foods Markets (WFMI) shares are trading at $59.05. The RSI is about 62, which is approaching overbought levels. WFMI provides premium and organic foods in supermarkets nationwide. The shares have traded in a range between $33.96 to $60.94 in the past 52 weeks. The 50 day moving average is $53.61 and the 200 day moving average is $43.21. Since the shares are currently trading well over the 50 and 200 day moving averages, and close to the 52-week high, they could be ready to drop lower. Earnings estimates for WFMI are just $1.81 per share in 2011, so the PE ratio is about 33. These shares appear ripe for a correction at 33 times earnings.
United Natural Foods (NASDAQ:UNFI) shares are trading at $43.45. The RSI is about 65, which is at overbought levels. UNFI is a wholesaler of natural, organic and specialty foods. The shares have traded in a range between $28.06 to $45.96 in the past 52 weeks. The 50-day moving average is $38.99 and the 200-day moving average is $35.74. Since the shares are currently trading well over the 50 and 200 day moving averages, and close to the 52-week high, they could be ready to drop lower. Earnings estimates for UNFI are $1.69 per share in 2011, so the PE ratio is about 26. These shares appear ready for a correction at 26 times earnings.
Peets Coffee & Tea, Inc. (NASDAQ:PEET) shares are trading at $48.12. The RSI is about 80, which indicates very overbought levels. PEET is a coffee roaster and operates retail coffee shops. The shares have traded in a range between $33.20 to $49.24 in the past 52 weeks. The 50-day moving average is $40.92 and the 200-day moving average is $38.75. Since the shares are currently trading well over the 50 and 200 day moving averages, and close to the 52-week high, they could be ready to drop lower. Earnings estimates for PEET are just $1.57 per share in 2011, so the PE ratio is about 31. These shares appear ready for a correction at 31 times earnings.

Caribou Coffee Company, Inc. (NASDAQ:CBOU) shares are trading at $9.99. The RSI is about 57. CBOU is a coffee roaster and operates retail coffee shops. The shares have traded in a range between $6.61 to $11.84 in the past 52 weeks. The 50-day moving average is $9.82 and the 200-day moving average is $10.10. Since the 50-day moving average just crossed below the 200-day moving average the chart shows a very bearish downtrend called a "Death Cross Formation," so they could be ready to drop even lower. Earnings estimates for CBOU are just 37 cents per share in 2011, so the PE ratio is about 27. These shares appear overextended at 27 times earnings.

Green Mountain Coffee Roasters, Inc. (NASDAQ:GMCR) shares are trading at $41.75. The RSI is about 57. GMCR provides specialty coffee products. The shares have traded in a range between $21.83 to $47.81 in the past 52 weeks. The 50-day moving average is $37.18 and the 200-day moving average is $32.20. Since the shares are currently trading well over the 50 and 200 day moving averages, they could be ready to drop lower. Earnings estimates for GMCR are just $1.23 per share in 2011, so the PE ratio is about 34. These shares appear ripe for a correction at 34 times earnings.

The J.M. Smucker Company (NYSE:SJM) shares are trading at $69.47. The RSI is about 74, which is at overbought levels. SJM makes a variety of food products sold in supermarkets nationwide. The shares have traded in a range between $53.27 to $70.10 in the past 52 weeks. The 50-day moving average is $64.30 and the 200-day moving average is $61.43. Since the shares are currently trading well over the 50 and 200 day moving averages, and close to the 52-week high, they could be ready to drop lower. Earnings estimates for SJM are $4.77 per share in 2011, so the PE ratio is about 15.

These stocks are looking very extended now. The combination of high PE ratios and high RSI levels make these shares less likely to give investors the returns they have recently provided.

The data is sourced from Yahoo Finance. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.