It's almost time to sell!
December is normally the month famous for its tax selling -- i.e., selling stocks that have fallen in value to get tax deductions.
But I'm going to propose doing some selling in January. Why? Because the recent market run-up has a few notable stocks selling for much more than they're worth. And if we sell in January instead of December, any tax consequences from gains will be on 2011's taxes instead of 2010's.
I've identified five stocks that are excellent sell candidates, two of which are in my personal portfolio. Let's start with the three I don't own.
Three to sell
Each of the companies below have had nice run-ups in recent months, giving us tempting potential exit prices. Check out my summary, then I'll explain further.
|
Company |
Current Price |
52-Week Range |
Will It Be Around in 10 years? |
Why Sell? |
|---|---|---|---|---|
|
Wynn |
$104.16 | $58.21-$117.50 | Yes, barring liquidity issues. | Purely price. |
|
Netflix |
$185.38 | $48.52-$209.24 | Yes, in a weakened form. | I doubt its growth prospects. |
|
Vonage |
$2.48 | $1.30-$2.79 | Doubtful. | It's dying. |
Source: Google Finance.
The companies I've listed run the gamut in terms of actual business health. This is because no matter how great a company is, if its stock is too expensive, it can still lose you money.
But being a great business isn't a problem for Vonage. I see no way out of the funeral parlor for this voice over-IP pioneer as Internet options like Skype nip at the low end, and bundling options from the likes of Verizon and Comcast dominate the high end.
Netflix runs a business many of my fellow Fools, including our co-founder David Gardner, adore. I've been a customer so I can attest that they do an excellent job. And they're giving it their best as DVD's convert to streaming. But I see the Red Envelope Warrior as capable of defending its empire, not expanding it. The market is pricing it for the latter.
Wynn is actually my favorite of the Big Three Las Vegas casino operators. Its balance sheet, though leveraged, is much stronger than those of MGM
Two on my personal sell list
Here are the two I'm considering selling myself.
|
Company |
Current Price |
52-Week Range |
Will It Be Around in 10 years? |
Why Sell? |
|---|---|---|---|---|
|
Whole Foods Market |
$50.91 | $26.88-$51.75 | Yes. | Purely price. |
|
Tempur-Pedic |
$39.73 | $23.45-$40.23 | Yes, barring liquidity issues. | Price given risk from a leveraged balance sheet. |
Source: Google Finance.
Whole Foods and Tempur-Pedic present the classic growth stock problem -- sell a stock that looks fairly to-richly valued and miss out on possible growth-fueled gains or hold onto a stock that could come crashing down when growth moderates.
I'm a fan of the business prospects of both companies. Whole Foods is riding an organic food trend that doesn't appear to be a fad. And Tempur-Pedic makes a quality product (in this case, mattresses) its customers swear by.
But in the case of Whole Foods, a lot of growth is implied in its 35-times-earnings stock price. Tempur-Pedic's valuation isn't as rich, but I like a bit of a discount given its debt load.
At today's prices, I prefer the stocks of Whole Foods and Tempur-Pedic to those of Wynn, Netflix, and Vonage but come January I will be seriously considering selling at least part of my positions in each.
I don't want to leave you on such a negative note, though. If you do free up some money from January stock sales, consider the stock presented in our brand new free report: "The Motley Fool's Top Stock for 2011."
There's no charge for the report, so happy holidays from the Motley Fool! Click here to download the report.
