This week’s 2 Minute comes in the form of a warning about some stocks. A recent Barron’s article focused on a trend in stock picking that should be a big red flag for all investors… especially the retired.
The article cited 163 companies being recommended by analysts that have already exceeded their target price. That means the stocks are still buys, but have moved past the target price the analysts listed when they recommended them.
This is ridiculous.
Chipotle Grill (NYSE: CMG) would have to drop 2% to get back to its target, but 13 of 27 have it listed as a “Buy.”
Adobe Systems (Nasdaq: ADBE) is expected to drop in the next year, but it gets 16 “Buy” recommendations and just one “Sell.”
TripAdvisor (Nasdaq: TRIP) is expecting a 14% drop in share price, but only two of 26 have sells on it.
That’s 37 times earnings for Chipotle, 33 times for Adobe and 39 times for TripAdvisor.
Don’t get me wrong. I am not in the crystal ball business. I have no more ability to call the top or bottom of the market than anyone else. But come on. This has gone beyond ridiculous.
Margin levels – how much people borrow to buy stocks – are back to 2008 levels. That is always a precursor to a sell-off.
And it is hard to find anything worth owning that isn’t at and over its 52-week high.
Is this market overpriced? No one seems to think so. Everything I hear is that it is fairly priced.
Well, fairly priced for some is a lot different from fairly priced for a retired person, or somebody who is planning to retire soon. For these folks this market is a minefield just waiting to take your legs off.
There are buys out there, but you had better be very careful about where you step.
As I said last week, if you need to put money to work:
- Look for the out-of-favor industries that have big potential down the road.
- Stick with big names with a yield, if possible.
- Leave the risk for those who haven’t learned the importance of time and bargain hunting.
- And don’t forget about big-name corporate bonds. They avoid most of the stock market’s volatility and, if you keep your maturities short, can return above-average returns despite what happens to interest rates.
Most of us have no way of recovering losses. So use all the tools available to protect your money.