The market seems more stretched and ready for a pullback by the day. It might be time to look at selected equities to avoid or to put short positions on for more aggressive investors. Here are three stocks for consideration. All have poor cash flow, high valuations, and substantial insider selling.
Incyte Corporation (NASDAQ:INCY) - Incyte Corporation focuses on the discovery and development of proprietary small molecule drugs for hematologic and oncology indications, and for chronic inflammatory and autoimmune diseases. Its product pipe line includes INCB18424, which is in Phase III clinical trial for myelofibrosis; Phase II trial for polycythemia vera/essential thrombocythemia; Phase I/II trial to treat other hematologic tumors; and Phase IIb trail for the treatment of psoriasis.
Valuation – INCY sells at almost 13 times trailing revenues. Incyte is projected to have losses both for 2011 and 2012. A loss of $1.50 is expected this fiscal year and another loss of 70 cents is projected in 2012. Insiders have sold over 55% of their shares over the prior 6 months. Shares are 80% above their 52 week low. INCY has strong projected revenue growth in 2012, but is still scheduled to lose money. AVOID
Panera Bread (NASDAQ:PNRA) - Panera Bread Company, together with its subsidiaries, owns, operates, and franchises retail bakery-cafes in the United States and Canada. Its bakery-cafes offer fresh baked goods, sandwiches, soups, salads, custom roasted coffees, and other complementary products, as well as provide catering services. The company also manufactures and supplies dough and other products to company-owned and franchise-operated bakery-cafes
Valuation – Panera is selling at better than 27 times this year's earning estimates and almost 24 times next year's consensus EPS. Insiders have sold almost 22% of their shares over the last six months. PNRA is near the top of its five year valuation range based on Price to Book and Price to Cash Flow. Given rising gas prices and input costs, PNRA's margins seem vulnerable. If consumer spending declines, more customers will trade down to the Subways of the world. SELL
Shutterfly (SFLY) - Shutterfly, Inc. provides an Internet-based social expression and personal publishing service that enables consumers to share, print, and preserve their memories through the medium of photography. It offers a range of personalized photo-based products and services for consumers to upload, edit, enhance, organize, find, share, create, print, and preserve their memories in digital photos. The company produces and sells photo books; greeting cards and stationery; personalized calendars; and photo-based merchandise, such as calendars, mugs, canvas prints, mouse pads, magnets, and puzzles.
Valuation – SFLY sells at an incredible 144 times this year's earnings and over 55 times 2012's consensus. Earnings estimates for 2011 have been drastically reduced for 2011 over the past ninety days. Insiders have also sold over 60% of their holdings over the past 180 days. Over the past two fiscal years, net income has more than quadrupled. However, operating cash flow has not even doubled over the same time period. Priced at over 6 time trailing revenues and almost 4 times its projected PEG, Shutterfly is overvalued. SELL.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.