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TheStreet Open House

Overvalued Stocks to Avoid in May

BALTIMORE ( Stockpickr) -- Ask any self-respecting contrarian what's what these days and you're sure to get the same answer: The market's overvalued. But while most investors ponder which investments they should be getting into, they ignore the other end of the spectrum: the stocks they should avoid. On Wall Street, value has long been proven an effective method of investing, and over the years, analysts and academics have worked hard to develop the "best" models for determining the true per-share value of a stock.

The justification to invest in an undervalued play is simple enough: When a company's trading for less than it's worth, it's time to buy. But in this economic climate, with market participants only too ready to release their "inner bears," knowing when to sell could save you some serious money.

The first thing to remember about an overvalued stock is that value is fleeting. A company can be overvalued one day and a good value the next. As fundamentals and prices change, so too does the argument for "value." That said, these companies aren't "bad" stocks -- quite the contrary, a few are actually compelling companies. But just as you wouldn't buy a "good" car for more than sticker price, you should be wary of stocks that trade for more than they're worth.

These stocks have the furthest to fall if things turn sour again.

Here's a look at a handful of popular companies that are overvalued right now.

There's no question that Irish discount airline Ryanair (RYAAY) has carved out an interesting niche of Europe's air transport market. The company has a novel approach to crew compensation, it only flies the venerable Boeing 737, and it only operates routes that it can handle efficiently. But all of those factors don't make up for the fact that this airline is currently sporting a P/E of 25.88 (vs. 1.74 for the industry) and trades for almost 15 times more per dollar of sales than its peers.

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