This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

4 Big Stocks Ripe for a Sharp Pullback

Stocks in this article: AMD HRB NFLX YHOO

H&R Block

For much of the past five years, tax preparation firm H&R Block ( HRB) traded between $14 and $20 as investors slapped a modest P/E multiple on profits, noting the maturity of the tax prep business. Yet since the start of this year, shares have risen more than 55% as investors come to expect that the looming tax changes associated with recent health care changes will spur the need for much more tax help from firms such as H&R Block.

Analysts at Morgan Stanley question whether the Affordable Care Act will really deliver the upside that these shares seem to already reflect. And they think that even with a modest bump from ACA, per-share profits are likely to rise just 10% to 12% in fiscal (April) 2014 and 2015.

>>3 Big Stocks on Traders' Radars

The fact that this stock, which historically traded with a single-digit forward multiple, now trades for more than 15 times projected 2014 profits means that much of the reward has been achieved, with ample risk still ahead. After all, this stock could go right back to a single-digit multiple if the impact from ACA is underwhelming.

Netflix

Hats off to Reid Hastings. The CEO of Netflix ( NFLX) took a lot of heat last year when his company was reporting tepid sales growth and shares were in freefall. He preached patience and promised better results in the future. With shares now up more than 200% since this time last year, he's surely been proven right. Netflix has turned out to be a far more impressive operator than many realized.

Yet it's crucial to distinguish between a great company and a not-so-great stock price. The fact that this stock now trades for around 70 times projected per-share profits of $3.10 a share tells you that shares have become disconnected from any fundamental reality. While the company's bulls focus on Netflix's 15% to 20% sales growth in 2013 and 2014, serious headwinds remain.

>>4 Hot Stocks to Trade (or Not)

Those headwinds include a largely maturing U.S. customer base, ongoing losses at its international business, and a management preference for avoiding price increases, which can impede sales and margin gains. Analysts at Merrill Lynch also suspect that Netflix will soon see a lot of competition, which is one of the reasons they see shares falling to just $115. In Wall Street parlance, this is a stock that is "priced to perfection," meaning that all of the good news may already be factored in, with possible bad news unaccounted for.

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,946.30 +141.50 0.79%
S&P 500 2,077.40 +6.75 0.33%
NASDAQ 4,779.7030 +14.3230 0.30%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs