NEW YORK (TheStreet) -- A prudent portfolio strategy at the beginning of a year is to review your dollar investments in each stock in your portfolio compared to the amount of your original purchases. Positions that gained by 25% to 50% or more over the last 12 months should be pared back to the original amounts putting the excess dollars in the bank. For a stock that declined over the last 12 months but your reasons to own that company remain intact consider dollar-cost-averaging by adding to that position.
Today I provide my buy-and-trade profiles for 18 buy-rated eateries in this strategy also known as portfolio rebalancing. Eight of the 18 gained more than 50% over the last 12 months including the three best performers Buffalo Wild Wings (BWLD) up 92%, Red Robin Gourmet (RRGB) up 91.4% and Sonic (SONC) up 79.9%.
Eateries are in the retail-wholesale sector which is 27% overvalued after gaining 13.6% over the last 12 months with a sector price-earnings ratio elevated at 24.9. The retail-food & restaurant industry is 32.7% overvalued with a gain of 15.8% over the last 12 and a price-to-earnings ratio elevated at 28.3. These are fundamental reasons to rebalance portfolios containing these buy-rated eateries.
Looking at today's table, the column 'OV/UN Valued' shows that Papa John's (PZZA) is 280.7% overvalued, but this could be a fluke on a bad piece of data from the providers used by www.ValuEngine.com. A better observation is that six of the 18 buy-rated eateries are overvalued by a greater percentage than the industry.
The 'VE Rating' column shows that all 18 stocks have '4-Engine' buy ratings according to ValuEngine. Note that a '3-Engine' is a hold rating and a '2-Engine' is a sell rating.
The next column shows that Papa John's is the only decliner over the last 12 months with a loss of 17.7%.
Since all stocks have buy ratings the column labeled 'Forecast 1-Year Return' shows that all 18 stocks are projected to gain between 5% and 12% over the next 12 months. Readings between a projected loss of 5% and a gain of 5% would be a hold rating and a gain of more than 12% would be a strong buy rating.
The column that is headed 'P/E Ratios' represents the trailing 12 month price-to-earnings ratios. In my judgment readings between 17.2 and 51.0 are elevated P/E. With the industry P/E at 28.3, Chipotle (CMG) has the P/E of 51.0. I have been profiling Chipotle as a momentum stock and on Jan. 3 I wrote, Tesla Led 8 Momentum Stocks Higher in 2013 which includes an update for Chipotle.
The '200-day SMA' column represents the 200-day simple moving averages. Dow component McDonald's (MCD) was the only eatery trading below its 200-day simple moving average at $97.91, but with weakness on Monday four others slipped below their 200-day SMAs. Remember that I predict that the major equity averages will test their 200-day SMAs in 2014 and thus the stocks in today's table will likely do so as well in a process I call a reversion to the mean.
How to Use Value Levels -- If you are looking to buy eatery stocks or add to long positions, my buy-and-trade methodology recommends that you employ good-until-cancelled GTC limit orders to buy weakness to a value level shown in the table. The value levels followed by an 'M' apply for January only. Those followed by a 'Q' apply until the end of March. Those followed by an 'S' apply until the end of June. Those followed by an 'A' apply for all of 2014.
How to Use Pivots -- A pivot will likely be a magnet during the time frame shown by the letter. Pivots followed by an 'M' apply for January only. Those followed by a 'Q' apply until the end of March. Those followed by an 'S' apply until the end of June. Those followed by an 'A' apply for all of 2014. If a value level or risky level is violated during its time horizon that level becomes a pivot and has an 85% chance of being re-tested during its time horizon.
How to Use Risky Level -- If you are looking to book profits on eatery stocks, my buy-and-trade methodology recommends that you employ GTC limit orders to sell strength to a risky level shown in the table. The risky levels followed by an 'M' apply for January only. Those followed by a 'Q' apply until the end of March. Those followed by an 'S' apply until the end of June. Those followed by an 'A' apply for all of 2014.
At the time of publication the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.