With all of the major indexes hitting new all-time highs in this week's trading, a lot of big name stocks have risen to either all-time or new 52-week highs. In some cases the stocks remain attractive with additional upside potential, while in other cases investors may want to look to lock in some of their recent gains.
The big concern of Wall Street over the last few months has been slowing earnings growth. The ongoing trade negotiations between the U.S. and China appears to be improving, but an eventual deal is still very uncertain given the complexities of the negotiations, and any sign that negotiations are stalling will drive the market lower.
If we do see a correction from the current highs, the stocks with the highest valuations will likely get hit first, which is why it is very important to keep an eye on where some of the top stocks are currently trading.
If you have positions in stocks with high values you may want to considering locking in some of those profits and limiting your risk in the security by putting your money to work in stocks that appear to have more built in value.
Here are a few stocks that appear to have traded into overbought territory.
Microsoft (MSFT)
Tech giant Microsoft (MSFT) has been a top performing stock the last several years. Microsoft's leadership role in the rapidly growing cloud computing space has Wall Street very bullish on the stock moving forward. The company most recently reported earnings at the end of October with earnings of $1.38 per share topping the $1.24 estimate and up from $1.14 during the same period last year. The company has delivered better than expected top and bottom line numbers the last three quarters which has driven the stock's 42% gain on the year. With the strong gains, MSFT has possibly traded into overbought territory. The stock is currently trading at 27 times earnings which are expected to rise at an annual rate of 15% over the next five years. If the company is able to hit its future estimates there is upside potential in the stock, but shares are priced for perfection and any sign of weakness could lead to a correction in the stock. MSFT trades at $143.92 with an average price target of $158.57.
Netflix (NFLX)
Video streaming giant Netflix (NFLX) ran into selling pressure over the summer as Wall Street expressed concerns over increased competition in the sector. Walt Disney (DIS) and Apple (AAPL) are both make aggressive moves into video streaming which could have a material impact on Netflix subscriber numbers in the future. For now, Netflix numbers remains solid, and the company has posted better than expected profits each of the last six quarters. While profits have been solid, the company has posted slightly weaker than expected sales the last two quarters which has led to shares moving lower. Despite the stock trading lower over the last four months NFLX remains a high value stock with shares trading at 92 times earnings and 53 times future earnings. Analysts forecast the company to grow earnings at an annual rate of 42% over the next five years. The company has shown solid subscriber numbers, but given the current valuation the stock has a lot of downside risk if the company posts one earnings miss or reports subscriber growth that is weaker than expected. Long term investors in the stock are still looking at a nice gain in the stock, and may want to consider locking in some of those profits and looking for a stock with better upside potential. NFLX trades at $289.12 with an average price target of $369.97.
Visa (V)
A strong overall economy, and low unemployment has boosted consumer confidence and kept consumer spending solid as we approach the all-important holiday shopping season. Consumer spending is strong and consumers are doing a lot of purchases on credit cards where they are running record high balances. Visa (V) has shown impressive earnings growth of 21.5% per annum over the last five years. Profit growth is slowing but analysts still forecast earnings growth of 15% annually over the next five years. The stock trades at 33 times earnings. The recent earnings growth and forecast growth is strong enough to warrant the stock's high valuation, but with shares priced for perfection any sign of weakness will push shares lower. Visa last reported earnings at the end of October with misses on both the top and bottom line. The market overlooked the disappointing numbers and V remains in the upper end of its 52-week range but given the recent miss the stock cannot afford any additional negative news, and any sign that consumer confidence is weakening would lead to a correction in the stock. V trades at $177.43 with an average price target of $205.19.
Coca-Cola (KO)
Soft drink giant Coca-Cola (KO) has appreciated 11.5% on the year, and the stock is currently trading in the upper end of its 52-week range. The stock hit a fresh all-time high in September and has been trading sideways over the last two months as the broader market rose to new highs. The stock's run up earlier in the year drove the valuation into overbought territory with the stock currently trading at 29 times earnings. Analysts expect the company to grow profits at an annual rate of 4.7% over the next five years. The company reported its last set of quarterly number in mid-October with earnings falling in-line with the consensus and sales slightly outpacing estimates. The in-line report was not enough to push the stock higher and given the current valuation it appears as if there is a ceiling on the stock and shares will struggle to move higher unless the company is able to string together a series of better than expected numbers given the modest growth forecast analysts currently have for the company. KO is currently trading at $52.72 with an average price target of $57.50.
