Trading Strategies for Nine Sell-Rated Stocks

This column was originally published on RealMoney on June 22 at 10:03 a.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

Just because ValuEngine rates a stock a strong sell or sell doesn't mean the stock should be shorted -- not in this M&A-mad, private-equity driven world.

Traders can trade sell-rated stocks from either the long side or the short side, while investors should pare these names from their portfolios, and not look back.

Setting the ValuEngine Screens

There are 33 stocks rated strong sell according to ValuEngine that have a market cap of at least $200 million and are at least 10% overvalued. There are 157 stocks rated a sell with a market cap of at least $200 million and that are 20% overvalued. I won't be profile 190 names (at least, not today!). Instead, I've chosen to focus on nine popular names that I've profiled before or that have recently warranted discussion on RealMoney.

One caveat: the homebuilders. They can provide short-term trading opportunities from time to time, but right now, they are not appropriate for investment portfolios or for trading. I've tracked them for two years, and they peaked in July 2005, when they were overvalued and overbought. Most have already declined toward 52-week lows.

Seven Sell-Rated Tech Stocks

Advanced Micro Devices(AMD): This chipmaker traded as high as $42.70 in the first week of March 2006, when it was favored over arch-rival Intel(INTC), which traded below $20 around that time. How times have changed. This is a good example of why investors have to think longer-term.

Today the fair value for AMD is just $5. I show a monthly value level, which is an attractive buying point, of $10.52 but the 200-day simple moving average at $18.17, so AMD should not be in a hurry to drop below $10.

As a strong sell, it's not for investors, but Thursday's upgrade by Stifel Nicolaus could result in a trade up to the 200-day SMA and should keep any additional weakness above the monthly value level at $10.52.

Crown Castle International(CCI) manages wireless communications towers and is 34.1% overvalued, with fair value at $26.34. The weekly chart profile shifts to negative on a close this week below the five-week modified moving average at $35.30.

A close below a monthly pivot at $33.29 would indicate risk to my annual value level at $19.34. The upside should be limited to quarterly and semiannual risky levels, where sellers are likely to emerge, at $39.02 and $39.93.

Motorola(MOT) has taken it on the chin lately, but the cell-phone maker somehow remains 46.2% overvalued, with fair value at $12.25. My monthly value level is $17.14 with a semiannual pivot at $18.54 and an annual risky level at $21.42.

Rackable Systems(RACK) makes servers and has been smacked into oversold territory on its weekly chart. But it's still 33.7% overvalued, with fair value at $9.30. The 52-week low is $11.25 with a monthly pivot at $14.21, which seems like a tradeable range.

Cree(CREE) is involved with optics semiconductor materials for applications is 80.3% overvalued with fair value at $14.53. The weekly chart (not shown) profile shows rising momentum with the five-week modified moving average at $22.96 and the 200-week simple moving average at $23.69. Quarterly and monthly value levels are $23.28 and $19.50 with semiannual risky levels at $29.49 and $32.39. Note the short-term trading pattern on the daily chart below.

Cree Check out that momentum

Source: Reuters

SBA Communications(SBAC) is another company involved with wireless communications towers. This one is 51.6% overvalued, with fair value at $22.19. The weekly chart profile is overbought with the five-week modified moving average at $31.78. Monthly and semiannual value levels are $30.86 and $29.15, with a monthly pivot at $34 and the quarterly risky level at $36.93.

SBA Communications Still trading well above where it deserves

Source: Reuters

SanDisk(SNDK) is 43.6% overvalued with fair value at $32.36, but it's above its 200-day simple moving average at $45.79 and its weekly chart profile is positive. My annual value level is $43.86, with an annual risky level at $54.19.

Two More Notable Sell-Rated Names

Freddie Mac(FRE) is subject to the woes of the mortgage market and securitizations. The stock is 50.5% overvalued, with fair value at $41.51, and is already weakening on its weekly chart profile. Check out the declining momentum, and the five-week modified moving average at $64.76 and the 200-week simple moving average at $62.87. My quarterly value level is $60.86 with annual and semiannual pivots at $63.02 and $63.38 and semiannual risky level at $67.50.

Freddie Mac Feeling the subprime malaise

Source: Reuters

Zoltek(ZOLT) can stand the heat, as a maker of carbon fibers for flame- and heat-resistant applications. It's 52.3% overvalued, with fair value at $27.55. And its weekly chart profile is overbought, with the five-week modified moving average at $37.85. Monthly and quarterly value levels are $33.15 and $32.50, with the 52-week high at $44.90.

Zoltek Overbought, overvalued, a sell -- and still near highs

Source: Reuters

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