In the first part of this article, we mentioned several stocks that have acquired significant gains this year that should be sold for fear of a market pullback. While each company presents its own fundamental challenges, they are all on firm footing which suggest that the long term trend is heading upward for their respective valuations. However, as we continue to remind ourselves that "a rising tide lift all boats" it stands to reason that even the best of companies can get sunk when that tide drops and creates a whirlpool of fear.
Unlike part one where Cisco's (NASDAQ:CSCO) strong earnings announcement led the party in the broader market. Today, my displeasure stems from the less than stellar earnings report from Sirius XM (NASDAQ:SIRI) - to the extent to where it wants me to revisit my ideas of securing profits in other equities. While Sirius is holding up pretty well despite the report, others may not fare so well should the bears take full control. As with the part one, we led with the following:
"Flat" would be the way that I would describe the market's activity on Wednesday as the market turned its attention to Greece on whether or not it would accept reforms as part of its bailout to avert default. But nevertheless, the broader markets continue to be filled with the sort of optimism that reminds investors of the glory days of the tech bubble. Oops, did I just say that? However, the Greece situation notwithstanding, it seems that investors have already made up their minds that they are not going to let issues abroad spoil this bull party.
Onr Wednesday, the Dow was up 5.75 points, or 0.04%, at 12,883.95. The S&P 500 rose 2.91 points, or 0.22%, at 1,349.96. While the Nasdaq added 11.78 points, or 0.41% to close at 2,915.86. The Dow has gained 21% since early October, which has prompted several economists to suggest that a pullback just might be imminent. This notion has caused me to pause and wonder if it is time to take some profits in the following stocks.
Research In Motion (RIMM)
For Research In Motion, I continue to think that the prudent thing to do is to take profits before the market realizes that its new CEO is not really new. The stock is up 17% on the year, and though the company has recently made a leadership change, there is evidence that maintaining the status quo will be its method of operation. This is a strategy that has yielded neither success nor is it a cause for optimism. Instead, until the company can come to terms with the error of its ways and forget about its past, the stock becomes highly speculative; its fundamental position in terms of cash, notwithstanding.
RIM's stock may only be two quarters away from dropping below $10, absent any new attainable competitive strategy. One of these strategies: Aside from devoting its attention to services, the company should consider an acquisition. Sirius XM (SIRI), although unlikely, would be a good acquisition candidate. This point has been made once before. This would separate RIM from its dying enterprise footprint and further its own BBM Music Service strategy - one that now has a new $5 a month cloud-based offering.
Amazon disappointed investors early to possibly surprise them down the road. This is a bet that the company has placed, and one that I think will certainly pay off. Last week, the company reported fourth quarter numbers that included a 57% decline in profit. It said net income for the quarter ended in December fell to $177 million or 38 cents a share, from $416 million, or 91 cents a share in the same period a year earlier, while revenue climbed 35% to $17.43 billion.
The disappointment came as Wall Street analysts were expecting the company to report earnings of 17 cents a share for the quarter and $18.25 billion in revenue. During the conference call, Tom Szkutak, the company's CFO, defended Amazon's perceived lack of fiscal control by suggesting that it must move aggressively to take advantage of new opportunities. I think this disappointment will remain fresh on investor's minds and within any market pullback, the stock may drift back to where it ended December at $173.
Speaking of Netflix, its growth has been a topic of discussion of late. But more importantly, so has its stock price. And this is where the uncertainty comes in. I have become quite uneasy of how to value the company. However, seeing as it has surged over 80% on the year, investors should take profits now - without a doubt. As great of a run as the stock has experienced, questions still remain about the company's management and its ability to run its business effectively.
To its credit, Netflix management is doing its part to show that it can run its business effectively, as is evident in its recent Q4 earnings report, one that arrived better than expected. For Netflix it was like night and day from one quarter to the next. The company said that it has gained more than 600,000 subscribers in the fourth quarter. This compares to the 800,000 that churned out in the third quarter, which resulted in the stock plummeting to its recent lows. Things are indeed starting to look up, but strictly from a valuation standpoint, I continue to feel that the recent gains should be immediately locked in and investors will soon get an entry point under $100.
Disclosure: I am long CSCO, RIMM.