Consider Taking Profits On These 9 Stocks Before The Market Does It For You

by: Alan Brochstein, CFA

I recently shared my views that contrary to normal seasonal trading patterns, investors should expect their winners to be under pressure. I gave an example of a stock that I had sold out of my Top 20 Model Portfolio last week and also shared four other S&P 500 names that look vulnerable to me.

Today, I want to run a screen similar to what led me to call out the four names previously mentioned. Using Baseline, here is what I am doing:

  • Russell 3000 member
  • YTD price return > 20%
  • 2-year price return > 50%
  • Within 4% of 52-week high
  • Price vs. 50dma > 105%

This resulted in 27 names, so I added one more factor to avoid selling a stock where the fundamentals might be rapidly improving:

  • Next year earnings revisions past 3-months < +3%

Some of these are in the midst of being acquired, so I eliminated them. Here are the names that made the cut (click to enlarge image):

I sorted the list by YTD return, most to least. I don't follow any of these too closely beyond Copart (NASDAQ:CPRT). Thus, I will keep my observations to a minimum.

Gilead (NASDAQ:GILD) has emerged as a big Hepatitis C player with its transformational acquisition. This is a stock that they couldn't give away at < 10 PE for the prior two years, but the Pharmasset buy has driven the valuation dramatically. The technicals here look like the stock should be faded - the 50dma hasn't touched the longer-term moving average all year.

Cyberonics (NASDAQ:CYBX) jumped on Friday as it reported 17% sales growth and 34% operating income growth. The stock hasn't traded at this type of valuation since it began rallying in late 2008. The stock fell short of its recent peak. Short-interest exceeds 8% of the float.

JB Hunt (NASDAQ:JBHT) has a double top at work. I am calling this one out because it doesn't jump out as being particularly risky to me (but what do I know?). Just because the patient has the symptoms doesn't mean he is actually sick! This company is very leveraged to what I believe is a solid trend of intermodal transportation (linked to BNSF Railway). Insiders own 6% of the company.

Finally, CPRT just announced two international expansions. This is a company with very smart management with lots of skin in the game. For those not familiar, they operate facilities that collect cars for sale at auction and have revolutionized the process with their e-commerce efforts. Investors have bid the stock up on Sandy, but this is low-margin business. There are reasons to like the company longer-term - it's not overly expensive with that perspective. Still, the current set up says "don't buy" for now at a minimum.

I don't have a crystal ball. If I had to guess, the market will actually rally through the balance of the year. I think that some of the stocks I have highlighted may decline, but I am really pointing to potential relative performance short-falls rather than absolute declines. I also want to be careful not to convey that these must be sold. For many readers who own the stocks (and probably know more than I do about the specifics), it may pay to just be careful adding to positions in these names.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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