A Dozen Stocks Still Defy Gravity

These stocks still command nosebleed P/Es. They may crack under the pressure.
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Eight months ago it was common, perhaps even expected, for stocks to trade at unheard-of valuations, like 200 times earnings and 40 times sales. Today, many -- indeed most -- of those steeply valued stocks have been taken out and shot. Yet despite the widespread carnage, a handful of stocks continue to act like it's still early March.

The table below -- generated using

Marketguide.com's stock-screening tool -- shows the 12 stocks that, entering this week, still traded at more than 200 times their trailing price-to-earnings ratios and more than 40 times their trailing price-to-sales ratios. (The trailing price-to-earnings ratio is the price of the stock divided by the company's last 12 months of earnings per share; price-to-sales ratio is the price of the stock divided by the company's trailing 12 months of sales per share.)

We also set the screen for stocks with market caps of more than $1 billion in an attempt to showcase the biggies that still command whopping multiples.

How have these stocks managed to be such rebels? And can they continue to be?

Two hedge fund managers, neither of whom holds positions in any of the stocks on our list, say it's not that these stocks are immune from the downdraft, just that their pain has been delayed.

"Remember at the end of the movie

Jaws

when the only guy left is Chief Brody? And the boat is sinking and the shark is circling and he keeps climbing to the part of the boat that hasn't yet sunk? That's what's happening with these stocks that still have these egregious multiples," says one hedge fund manager. "Investors are doing the same thing here that Chief Brody was doing in

Jaws

."

His point is that investors have climbed aboard a handful of stocks that haven't sunk -- yet. But "eventually the boat is going to sink," continues the hedgie, especially under all the weight of the investor pile-on.

Says a second hedge fund manager: "There is still a ton of excess out there and this list is a representation of that. That doesn't mean these are bad companies;

Brocade

is a great company. But now that reality has begun to set in, you get this multiple compression," he says. "You had stocks that were working and then all of a sudden valuation became important. It's all a matter of perception."

Indeed, one of the stocks on our list is succumbing to the new market realities already. On Monday,

Juniper Networks

(JNPR) - Get Report

was walloped after its stock was downgraded by an analyst at

Morgan Stanley Dean Witter

who cited an

optical spending slowdown. And yet, even with Monday's beating, Juniper still remains richly valued by nearly any measure. At the close of Monday's action, Juniper was still sporting a P/E ratio of 474 and a price-to-sales ratio of 96.

Which leads to a final question: How much longer can the stocks on this short list continue to defy gravity?

Let us know what you think. Please send email to

Mark Martinez.