So for the past month or so, I have been arguing on SeekingAlpha and on my blog, www.Hedgephone.com that stocks could be finding a near term top and that the markets look a bit risky after the sustained rally in equities. We like to provide investors with both long and short ideas and to constantly try to evaluate the near, medium, and long term trends in stock and commodities markets. We also like to buy things when they are out of favor and sell/sell short when everyone loves stocks and are invested in tnem on margin. For the past month I have been especially cautious/bearish, which has portfolio consequences. However, being early is not the same as being wrong -- you just have to be patient and to make good money management decisions when you are waiting to get your timing right and make the big money, which usually is done by following the overall trend in markets and by owning the best cheap stocks and shorting the most overvalued when the bear market roars lower.
Here are 22 Stocks that we rate a Short/ Strong Sell:
Retail HOLDRs (RTH) -- PE = over 16, 52 week change = 7.31% -- higher oil prices and stimulus measure not hitting the workforce have made the consumer a risky bet after the magnificent run from a low of $65 in 2009 to the recent close at $108.80.
BJ's Restaurants, Inc. (BJRI) -- PE = 51.5X -earnings 52 week change = 62%, with food prices rising and the consumer still in the dumps higher oil and gas or a weakening economy could slow down the momentum here. The stock is currently trading for a nosebleed valuation.
Dillards Inc. (DDS) -- Dillards was dirt cheap at $5 in 2008, but today at a price well over $40 and at a historically large premium to book value, DDS shares look expensive and overvalued.
Simon Property Group (SPG) -- is overvalued according to my analysis of free cash flow with the business trading for 51X trailing earnings and at 18X EV?EBIDA. We would look to sell in the money calls against a long position or to short using a bear call spread or against put options. This is not as overvalued as some of these mentioned and a printing press QE3 would make this a "don't touch" on the short side.
Salesforce.com (CRM) -- Salesforce.bomb is a markedly overvalued stock that will likely tank at some point given the stock's astronomical valuation (my opinion of course) and lack of earnings growth. CRM has seen earnings decline year over year yet the company is trading for an incredible 285 times earnings. Although management is doing the smart thing for shareholders by purchasing other companies with stock, ultimately this name is due for a return to Earth.
Baidu, Inc. (BIDU) -- Bidu has had a tremendous rally since basing at around $100 per share. For those who held a short from those levels, remember next time to cut losses fast and take profits when they are ripe for the picking. BIDU looks to be a good short term short sale candidate as it has risen way too far too fast to a 94X PE valuation and to 37X revenues.
Direxion Russell 2000 Bullish 3X ETF (TNA) -- The triple levered IWM index TNA is a good hedging vehicle for selling call options against or for direct shorting as the Russell 2000 is arguably the most overvalued of the major index funds.
OpenTable Inc. (OPEN) -- Open is the posterchild for the speculative "story stock" rally. Sell the $100 call options on OPEN for a hedge against other long positions in technology.Open provides some "local deals" so it is likely also a Groupon.com bubble play but the stock is likely overvalued at 180X earnings.
DirexionShares Daily Real Estate Bull 3x Shares ETF (DRN) -- The DRN ETF is the triple levered REIT index and is a good option for short selling as the leverage hurts longer term longs due to interest and trading costs.
Boston Properties Inc. (BXP) -- Boston Properties is trading for a PE above 60 and a price to free cash flow well over 20X EV/EBTIDA and a PE over 80X. BXP is expensive and in commercial which has not yet had real problems and seems more expensive relative to Florida real estate, for example, which crashed badly in the 2008 recession.
Red Hat Inc. (RHT) -- Red Hat has 20% growth with a 90 PE, which makes it a strong short sale candidate. RHT has been around for a long time and the valuation simply seems stretched to a severe degree even with their cloud security growth prospects stronger than ever.
SuccessFactors Inc. (SFSF) -- Successfactor carries a bubble valuation, no earnings, little "Owner Earnings" and many years of losses as investment baggage that you should not leave unattended. Free cash flow here is largely a product of increasing short term liabilities. Investors in this one should take flight and sell their shares before the crash landing.
Delta Air Lines Inc. (DAL) -- Delta is going to have problems if the economy slows and oil prices continue to rise. I would look to sell the 6 month out $12 call options on DAL as the premium are quite thick for such a decent short candidate and when selling the call you only get short if the stock rises around 20% in the future, otherwise you collect your option premium and make money while you wait.
American Air Lines Inc. (AMR) -- American is another decent looking Airline short/hedging opportunity trading for a roughly 1.8 billion dollar valuation with roughly 3.95 billion in negative tangible book value.
Travelzoo Inc. (TZOO) -- Travelzoo is likely in a speculative bubble as previously mentioned. Travelzoo's PE ratio is well over 80 with growth in the 25% range and is a Groupon IPO excitement beneficiary.
Direxion Technology Bull 3x Shares ETF (TYH) -- Triple levered Nasdaq... A good way to play the short side in bear markets is to sell call options against TYH due to the overvalued nature of the Nasdaq and the volatile nature of this index fund, the triple leveraged index funds usually underperform on the way down to a large degree.
Direxion Technology Bull 3x Shares ETF (QQQ) -- A good tool for options hedging -- rebalanced out of AAPL which is reasonable into the more overvalued names.
iShares Russell 2000 Index ETF (IWM) -- The Russell is extremely overvalued thanks to QE2's stimulative effects on stock prices, but at a 30X plus PE ratio and after being up 100% more than the SPY over the past ten years the Russell 2000 is severely over-owned and overvalued.
Green Mountain Coffee Roasters, Inc. (GMCR) -- I like the coffee, but I am short calls against this bubble which is at 120X earnings even though earnings declined in the fourth quarter. The company is incredibly strong and riding solid growth trends, but the valuation is steep and GMCR has patents expiring soon.
Chipotle Mexican Grill, Inc. (CMG) -- Could the Burrito Bubble finally pop? 50X earnings for Mexican food seems a bit rich to me.
Disclosure: I am short CMG, OPEN, SFSF, TNA, DRN, SPG, IWM, QQQ, BIDU, CRM.