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TheStreet Open House

4 Big Stocks Ripe for a Sharp Pullback

NEW YORK ( Stockpickr) -- Market strategists talk about two kinds of stock market environments: "risk-on" and "risk-off." In a risk-off market, investors are fearful and favor conservative safe stocks. Since this past Labor Day, though, we've been in a "risk-on" market, and some of the most widely reviled (and heavily shorted) stocks have become the market darlings.

But sentiment is a fickle beast, and when investors grow nervous about an ever-rising market, they can quickly move back into "risk-off" mode, leading to considerable distress for the recent market winners.

>>5 Stocks Poised for Breakouts

It's easy to spot the names that are most vulnerable to a market correction. Here we'll focus on stocks that have risen at least 25% so far in 2013, sport a 2014 price-to-earnings that is higher than the broader market average of 14 and have relatively high levels of short interest.

With that in mind, here are four stocks that could turn out to be the biggest laggards of the rest of 2013.

>>5 Big Stocks That Could Drop in May


As investors have come to understand that the market for personal computers is slowly disappearing, with the slack taken up by tablet computers such as the iPad, it's also become apparent that many PC-related computer chips will no longer be in hot demand. That's bad enough for industry dominator Intel ( INTC), but it's potentially catastrophic for smaller rival Advanced Micro Devices ( AMD), which can flourish only in times of robust demand, when the pie is big enough for both of these chip makers to share profitably.

By the time that investors realized in late 2012 that AMD was headed for yet another money-losing year in 2013 (after losing $1 billion in 2012), shares managed to slip below $2. Yet miraculously, this stock has managed to double from those lows to more than $4. The key catalyst: Video game console maker Sony ( SNE) plans to use AMD's chips in its upcoming Playstation, and there are rumors that Microsoft ( MSFT) will follow suit with its next Xbox.

>>3 Tech Stocks Spiking on Big Volume

Yet here's the rub: The video game console market is far, far smaller than the PC market and won't instantly turn AMD into a profit machine. Analysts think the company has a shot of moving toward break-even in the summer of 2014, but few expect per-share profits to rise to 25 cents or 50 cents a year in coming years, as the recent rebound implies. When that reality sets in, profit-taking in this strong gainer may be the next move.

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