Nine Tech Stocks to Sell

On Dec. 1, I profiled 10 Tech Buys and 10 Sells for Year-End. The basis for the column was that strong stocks tend to trade higher into year-end, and that weak stocks tend to trade lower into year-end. The prudent long-term investor can use the opportunity to book profits on overvalued stocks as they trade higher, and to buy undervalued stocks as they slide lower.

Monday I set my screen to find technology stocks rated a sell by my model that are at least 40% overvalued. The companies I am profiling are not names on everyone's lists -- some are small-caps, but all have a positive weekly chart profile. What this means is that the share prices for these stocks have been moving higher, but share-price strength is not justified by the fundamentals.

My advice to long-term investors is at least to avoid investing new money into these companies. Check your portfolios; if you own these stocks, use the trading levels as guidance on when and at what price to liquidate these shares. Investors in these stocks should sell 25% to 50% of their position now, and then review the names again in early 2006.

Before we get to the nine overvalued stocks, let's review my three-pronged approach to trading and investing:

Fundamental Screens: I calculate a fair value for every stock, which is the price at which a stock can trade in a perfect world. Fair value is not a price target; fair value is based on a stock's past data and projections for the future, including the trailing 12-month EPS, the forward 12-month estimated EPS and the yield on the 30-year Treasury bond. How these data points are weighted is based on a historical analysis of the stock's price history along with 17 other variables that influence the calculation based on the stock's sector and industry group. These variables also provide a rating that I have chosen to keep in the background until today's alert. The ratings are: strong buy, buy, hold, sell and strong sell. It is a bell-shaped curve of some 6,000 stocks that I screen using valuengine.com. Most stocks are in the middle of the curve as a hold. Only 2% of stocks are rated a strong buy or strong sell by these measures.