The markets have had an incredible one week rally, but now it makes sense to take some profits and cut back on risk. This market is very fragile and it probably won't take much to cause the market to drop, especially since most indexes are close to the high end of their trading ranges. In spite of the coordinated action by central banks around the world to improve liquidity, there are still many challenges facing Europe, and the debt solutions being considered could easily unravel. European leaders plan to meet on December 9, and there is a strong chance that they will disappoint the markets with the results.
When you consider that the Republicans and Democrats in Congress can't agree on almost anything lately, just imagine how hard it will be for 17 countries in the European Union to agree. At this point, the market is priced for more positive steps and solutions and anything less could send the stock market back into a tailspin. Investors might want to consider taking profits in certain stocks, many of which are getting stretched in terms of valuation. Cramer has given all of these stocks a buy rating, but I think it makes more sense to play the trading range and buy low, sell high. There's a good chance there will be opportunities to buy these stocks back at lower prices, especially since they are at the high end of the recent trading ranges:
Verizon (NYSE:VZ) is a leading communications company and provides voice, Internet access, broadband data, long distance, etc. A recent article in Barrons.com states that a couple of analysts believe the upside is limited. In fact, Deutsche Bank has a $37 price target and Credit Suisse has a $33 price target, which means the stock appears overvalued now. See those price targets and other concerns here. At the end of November this stock was trading around $35.50 but has since rebounded and is now trading at the upper levels of its recent range. I would sell now around $38 and buy back around $36.50 or less.
Here are some key points for VZ:
Current share price: $37.85
The 52 week range is $32.28 to $38.95
Earnings estimates for 2011: $2.20 per share
Earnings estimates for 2012: $2.55 per share
Annual dividend: $2 per share which yields 5.3%
Yum! Brands, Inc. (NYSE:YUM) operates a variety of popular restaurants such as KFC, Taco Bell, Pizza Hut, and others. This company has solid growth prospects in emerging market countries like China. In October, YUM shares traded around $48, then the stock spiked to about $56, then dipped to below $53. This stock is nearing overbought levels and is probably due for a pullback. At over $56 per share now, it's probably going to have a hard time going much higher, so the risk/reward appears to favor selling it now and buying back for less, below $53 per share.
Here are some key points for YUM:
Current share price: $56.25
The 52 week range is $46.27 to $57.75
Earnings estimates for 2011: $2.86 per share
Earnings estimates for 2012: $3.20 per share
Annual dividend: $1.14 per share which yields 2.1%
Baidu, Inc. (NASDAQ:BIDU) is based in China and is a leading search engine company. This stock has had an incredible run over the past few years. However, due to this run, the valuation is at nosebleed levels and was recently trading for about 50 times earnings. This stock was trading for about $147 in September and then it dropped to about $105. Recently it has rebounded, but it still remains well off its high and the price action looks sloppy. This stock is probably stuck in a trading range, so it makes sense to take advantage of that by selling now and buying on dips. This is the only Chinese stock I have seen Cramer call a buy recently.
Here are some key points for BIDU:
Current share price: $134.09
The 52 week range is $94.33 to $165.96
Earnings estimates for 2011: $2.94 per share
Earnings estimates for 2012: $4.38 per share
Annual dividend: None
Whole Foods Market (NASDAQ:WFM) is a leading food retailer specializing in organic and natural products for health conscious consumers. I think this stock is overvalued, but Cramer gives it a buy rating. Most grocery retailers are trading for about 10 times earnings or less, and Whole Foods is trading at triple that value. This is a great company but if you pay too much for a stock, you can lose money even with the best companies. If this company misses on earnings or gives reduced guidance, it has plenty of room to fall. I think this stock is able to achieve an extended valuation from Whole Foods customers who not only want to shop at this grocery retailer, but also want to own the stock. That is investing based on ego rather than on logic and fundamentals. In the last several weeks, this stock has traded in a range of about $63 to $73, so I would sell the rally and consider buying on dips to $63.50 or less
Here are some key points for Whole Foods:
Current share price: $68.37
The 52 week range is $47.83 to $73.33
Earnings estimates for 2011: $2.26 per share
Earnings estimates for 2012: $2.59 per share
Annual dividend: 40 cents per share which yields .6%
Chipotle Mexican Grill (NYSE:CMG) operates a number of restaurants that offer high quality and affordable Mexican foods. This stock has been a market leader but the price to earnings ratio is now about 50, and that is much higher than most any other restaurant stocks. Cramer has given these shares a buy rating. When overvalued stocks miss earnings or have even a slight problem, they can quickly go from hitting new highs to hitting lows. This stock recently dipped to about $300 and has rebounded about 10%. I would take profits and look elsewhere but if you must own this stock, I would buy only on a major dip.
Here are some key points for Chipotle:
Current share price: $330.49
The 52 week range is $212.58 to $347.94
Earnings estimates for 2011: $6.82 per share
Earnings estimates for 2012: $8.62 per share
Annual dividend: None
Bristol-Myers Squibb (NYSE:BMY) is a leading pharmaceutical company. Cramer likes the new drug pipeline and thinks Bristol-Myers could be a takeover target. The dividend yield is getting smaller as the price of this stock rises. This stock dipped to about $30 per share in the past couple of weeks, but now it's very close to a 52 week high, and it looks extended. I would sell and consider buying back on dips around $30 per share.
Here are some key points for Bristol-Myers:
Current share price: $32.77
The 52 week range is $24.97 to $33.27
Earnings estimates for 2011: $2.30 per share
Earnings estimates for 2012: $2.01 per share
Annual dividend: $1.32 per share which yields 4%
American Electric Power (NYSE:AEP) is a major utility company and generates electricity derived from coal, natural gas, nuclear, and hydroelectric energy. American Electric has operations primarily in Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia, and West Virginia. This stock dropped to about $37 recently but has rebounded in the past few days. I would use this rally to sell and consider buying at lower prices, possibly around $36 and below.
Here are some key points for AEP:
Current share price: $39.25
The 52 week range is $33.09 to $40.08
Earnings estimates for 2011: $3.12 per share
Earnings estimates for 2012: $3.21 per share
Annual dividend: $1.88 per share which yields 4.7%
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.