5 High-PEG Stocks to Stay Away From

MILLBURN, N.J. (Stockpickr) -- In July 2011, I featured five stocks with high PEG ratios and recommended selling them or selling them short. Since then, the markets have endured a series of dramatic turns, both up and down, only to come out of it essentially unchanged.

All five of those high-PEG stocks, though, have declined over the past six month. Some have dipped more than others, but on average, the decline was well into the double-digit percentages.

With that performance in mind, here are five more high-PEG stocks to avoid.

Rollins

Rollins (ROL), best known for its Orkin subsidiary, offers pest and termite control to residential and commercial customers. The company is best known as being the "Orkin Man." The company typically has a very slow yet steady rate of growth. Despite the housing bust, homeowners still call on the Orkin Man to get rid of those dangerous termites, dirty roaches and pesky mice.

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That said, 2011 was a banner year for Rollins due to the bed bug scare in the U.S. The media was obsessed with bed bug stories for several weeks last summer. Many people did not have bed bugs but still had their homes treated for the pests.

The stock, which corrected with the rest of the market in July and August, then took off like a 1990s technology stock, rising 33% from its summer trough and putting in a solid 13% gain for the year.

I just can't believe that the bed bug and pest control business is deserving of a premium multiple and PEG. Be careful, because one day the stock's valuation might be squashed like a bug.

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