vladkri's  Instablog

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MSc. in Physics. Software Engineer. Interested in markets. Don't trade.
  • Kings Of Irrational Exuberance 0 comments
    Jul 2, 2014 10:07 PM | about stocks: LNG, CRM, LNKD, QIHU, YNDX, PCLN, TRIP

    My goal is to find most overvalued stocks which we can reasonably expect to eventually implode. I will use P/S and P/B ratios and very convenient screener on finviz.com which includes total 6795 stocks. To put this in perspective of how badly this market is overvalued, only 18% of all stocks trade below conservative P/S and P/B under 2. Half of stocks trade below 5.

    To find most outrageously overpriced stocks suitable for shorting with options I filter only optionable, trading on average > 100K shares, cap > 2B, no dividend, price over 20$ and short interest < 15%. Reasons being that these stocks fairly liquid, companies are expensive to take over, large short interest will not be in the way when going downhill and there is a lot of room below. These non-value parameters reduced list down to few hundreds eliminating otherwise fine candidates like TSLA which have large short interest.

    I need more manageable list of about 50. I achieve this by increasing P/S to > 7 and P/B to > 6. The remaining are companies not only producing no sales, there is also close to zero shareholder value in terms of assets. After removing biotech and pharma names, which are totally erratic, my list is down to 32 names.

    Then I remove names for which no active LEAP market exists. This condition eliminated prime implosion candidates such as NOW, N and CNQR. The list is now down to 15 names presented in the table below:

    Ticker P/S P/B Insider
    Implosion list
    LNG 63 138


    PANW 12 23 $37M
    TRIP 16 16 No insider sales!
    QIHU 14 14 No data
    P 14 12 $14M
    CRM 8 11


    FB 19 10 $120M
    BIDU 11 10 No data
    PCLN 9 9 $10M
    CAVM 8 9 $17M
    YNDX 9 9 No data
    SPLK 20 8 $17M
    TWTR 30 8 $25M
    LNKD 12 8 $65M
    CTRP 9 6 No data

    Indisputable leader here is Cheniere energy. Investors are betting big on the dream of riches from exporting USA natural gas. I think that the Dream will meet crushing reality of upcoming 'LNG' glut on world markets and rising domestic gas prices which will make export riches much smaller than expected.

    Many of these names are coming up from recent correction in what looks like wave "B" on weekly chart. Those that fail to clear latest top will be prime candidates for wave "C" ride down, but time is not right yet.

    Disclosure: The author is short CRM, LNKD.

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