By David Sterman
NEW YORK (
) -- Stocks fell from a six-month high, putting a pause in the 13% rally that started at the end of August. Investors may have found that many stocks are overvalued, putting them most at risk if the market keeps falling.
I ran a screen for stocks that have risen at least 40% in the past three months and sport 2011 price-to-earnings ratios above 40. Some of the slow-growth companies, in particular, don't merit such a strong move.
The logical rebounders:
Some of these stocks are here simply because they were
undervalued earlier in the summer. In July, I suggested that
(AMZN - Get Report)
, trading at $120, was due for a rally and predicted that "as investors start to once again embrace the company's robust long-term outlook, shares should eventually power past the $150 mark seen earlier this spring" (Read
Long-term Gains Will Come from this Tech Giant's Short-term Pain
.) With the stock now at $170, it's hard to find any appeal, as it now trades for 47 times next year's profits.
In a similar vein, health-care-information vendor
(ATHN - Get Report)
also looked like the victim of too much pessimism in the summer.
Now with a much loftier P/E multiple, which is nearly twice next year's sales-growth forecast, it looks like too much optimism is the name of the game.
When the market gets carried away:
I am among thousands of happy
(NFLX - Get Report)
customers. The video delivery and streaming service continues to attract new subscribers at a stunning pace, and that's pushed its stock into the stratosphere, trading at more than 40 times projected 2011 profits. But I've seen this picture before.
had a very rich multiple, as investors assumed strong growth would continue forever. But growth started to decelerate, and the shares slowly lost that P/E premium. A decade later, shares of Wal-Mart have gone nowhere, and still-rising sales were met with an ever-shrinking P/E. I fear a similar fate will befall Netflix.
Netflix is a company that can't afford to stumble. One so-so quarter, and this stock is toast, as expectations are so high. If you own shares of Netflix, it may be time to part with a stock that has been a real winner.
(TZOO - Get Report)
: This online travel site has surely posted impressive recent results. Profits for the September quarter were double the consensus forecast, as the company saw a 17% jump in revenue. Results were depressed in 2009, but demand for travel is clearly on the mend. Yet investors are clearly getting carried away, assuming the company can grow at a very fast pace in the next few years. After all, the online-travel market is largely mature, with formidable competition coming from the likes of
(PCLN - Get Report)
(EXPE - Get Report)