The more I view this stock market, the more nervous I get. While Wall Street gets set for some terrific year-end bonuses and investors take some amazing gains off the table, I’m sensing some euphoric buying in numerous areas of the stock market.
We saw what happened to hydrogen-cell car maker Tesla Motors, Inc. (NASDAQ/TSLA), as the high-momentum stock rocketed to $194.50 on September 30. The euphoric buying was clearly overdone and set for a nasty decline as short-sellers jumped in. Fast-forward nearly two months, and the stock has plummeted 38%, sitting at the $120.00 level as of Friday. And while some are blaming multiple engine fires in several Tesla cars, the reality was the stock simply accelerated much too fast on the chart to levels that were clearly unsustainable. Even now, trading at 80 times (X) its estimated 2014 earnings and with a price-to-earnings growth (PEG) of 11, the valuation is obscene.
Areas that I view as having some excessive run-ups and valuation in the stock market include the Internet services and social media sectors, which include such stocks as Facebook, Inc. (NASDAQ/FB), Twitter, Inc. (NYSE/TWTR), and Netflix, Inc. (NASDAQ/NFLX). These high-momentum stocks are excessively priced by the stock market, so investors should be wary of chasing them higher. As an alternative investment strategy, wait for the stock to come to you; in other words, wait for weakness in the stock market and for prices to decline before jumping into these investment areas.
The cloud services area in the tech sector has also seen some massive advances to the point where there is so much hype built into the … Read More
Apple, Inc. (NASDAQ/AAPL) is maintaining its position as the top seller of smartphones in the U.S., but in the more important global market, Apple is trailing behind its competitors. Unless Apple gains traction in China and the emerging markets, the stock is going nowhere—and that is exactly what institutional money is saying. In the last six months, institutions sold a net 29.14 million shares of Apple, cutting institutional ownership by 5.5%, according to Thomson Financial. The takeaway point in this scenario? When institutions sell, you need to take note and follow the pro money.
Simply put, by looking at where the institutional money is flowing, you can get a better sense of the market. Institutional investors are the money guys who have better access to important information and know when it’s time to jump ship. When a top-ranked analyst says jump, it’s usually wise to jump.
Take a look at the high momentum Internet services stocks. Institutional ownership is declining here, and I’m not surprised, given the massive run-up in prices this year.
Netflix, Inc. (NASDAQ/NFLX) has been the current target of heavy selling by institutions, as the share price surged above $300.00 and the valuation got out of whack at 86 times (X) its estimated 2014 earnings per share (EPS) and a massive price-to-earnings growth ratio at 8.62. Talk about overvalued! Institutions realize this, and over the past six months, 16.13 million shares were dumped, representing a decline of 4.5% in institutional ownership, according to data from Thomson Financial.
Even insiders at Netflix are selling, with 1.06 million shares sold via 26 transactions. On November 4, Neil Hunt, Netflix’s … Read More
The major bank stocks all closed off 2012 near their respective 52-week highs; and they’ve started 2013 with a bang. Driven by an improving banking industry that is assuming less risky businesses while shoring up their balance sheets and producing stronger units, the KBW Bank Index is up eight percent, outperforming both the S&P 500 and the Dow Jones.
The subprime credit crisis that surfaced in 2008 and drove the U.S. and the global economy into a recession was not what we wanted to see; but in some sort of twisted way, the events have led to an industry that has restructured the way banks do business—more specifically, the amount of risk that is assumed by a bank via sophisticated strategies. So far, this shift in structure, coined the “Volcker Rule” because it was set in place by economist and ex-Federal Reserve Chairman Paul Volcker, appears to be capping the number of speculative trades made by the banks, which is good.
Banks have altered the way they do business, and they’ve shown positive strides along the way.
In my view, the operating results have been fairly good, and this indicates that the banks will be able to grow their business volume across the board during the U.S. economic recovery.
Moreover, with the housing market and the U.S. economy continuing to improve, I feel bank stocks will also see some gains.
Most of the big banks have paid back part or all of their government loans. Overall, bank stocks are showing promise and delivering better results.
While risk surrounding the bank stocks has declined, there are still issues that could hamper … Read More