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Thursday, November 1, 2012 - 07:00
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Thursday, November 1, 2012 - 07:00
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Thursday, November 1, 2012 - 07:00

20 High Performance, High P/E Stocks to Sell Now

Thursday, November 1, 2012 - 7:00am

During the past couple of weeks, the equity markets have seen a lot of weakness. The selling last week was prompted by a host of companies reporting earnings misses, either on the top line or the bottom line, or both. A rare earnings miss by Google (Nasdaq: GOOG) caused a decided pullback in the tech space, and even stalwart Apple (Nasdaq: AAPL) was a disappointment both on the earnings front and in terms of share price performance.

So far this earnings season, we've seen a slew of other bellwethers such as 3M (NYSE: MMM), Caterpillar (NYSE: CAT), DuPont (NYSE: DD), Intel (NASDAQ: INTC), McDonald's (NYSE: MCD) and United Parcel Service (NYSE: UPS) offer up shaky Q3 results, and many also warned of a struggle in the coming quarter.

Given that so many companies have disappointed Wall Street so far, I expect there to be more disappointments, and possibly a lot more selling as we move into the height of the third-quarter earnings season. That means stocks of all stripes could be vulnerable to a wave of earnings-related selling. Technically speaking, all three major averages, the Dow, S&P 500 and Nasdaq Composite, have fallen below their respective 50-day moving averages, a clear sign that all is not well in stock land.

For shareholders of some of the best-performing stocks in 2012, that means much of the hard-fought gains could be in jeopardy. Moreover, stocks with relatively high price-to-earnings (P/E) ratios also could be even more susceptible, as "expensive" stocks tend to be a bit more risky than stocks with relatively lower P/Es.

To find out which companies in the S&P 500 have seen the best share price performance this year, and that also have what can be considered a relatively high P/E, I ran a Bloomberg data screen. Sifting through the data, I've come up with 20 stocks with big gains this year that also can be considered expensive by the current P/E metric.

The table below contains 20 high performance, high P/E stocks traders should consider selling, especially if they have big gains in their positions.

As you can see, all of these stocks have seen some sizeable gains so far in 2012. These stocks also can be considered expensive in terms of P/E ratio. And while big gains and high P/Es aren't necessarily reasons to sell a stock, when viewed in the context of a wider retreat in the market prompted by fears of slowing fundamentals and a lack of revenue and earnings growth going forward, these stock could become selling candidates for money managers looking to lock in gains.

If you are long any of these stocks, and especially if you have sizeable profits in any of them, then you definitely should consider taking some profits off the table. As traders, there is nothing more frustrating than seeing a big winner transform into a modest winner. Even worse, many traders let their big winners become barely winners -- or even losers, due to a decline in the broad market.

Action to Take --> If you want to protect your profits from the next downdraft, consider selling these 20 stocks today.

This article originally appeared on TradingAuthority.com:

20 High Performance, High P/E Stocks to Sell Now

Jim Woods does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC owns shares of INTC in one or more of its “real money” portfolios.