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What specific stocks do you all think are most overvalued or most likely to get crushed at the next correction?

High flying tech stocks TSLA, NFLX, and AMAZN have obviously been defying the bears for years now, but are always interesting candidates. ADBE, AMD, and ADSK are less hyped, but also look awfully high relative to earnings, if they have earnings at all.

ROL and DPZ fall into the steady-earnings growth-but-looking-crazy-expensive-to-me bucket.

NRG and S look like they might be bankruptcy candidates in the not too distant future.

Jan 2019 put options look interesting for a few of these names if they drop 50% or more. Just a thought...

What companies are on your "most overvalued" list?

Thanks for sharing,
John
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Stocks Dow 30: Real-time quotes
https://www.cnbc.com/dow-components/

Pretty good looking group but of them yes I think Buffett was right to dump this garbage IBM International Business Machines Corp belatedly. Which one is worse?

Obviously Walmart has to go to make room for Amazon soon but I checked and it doesn't make much if any difference in share performance afterwards. Going in or out.

UNH UnitedHealth Group Inc

With the failure of repeal it continues to have a license to print money so definitely not a short.

When the Federal Reserve blows it again as it surely will they are all great shorts but how to time that exactly. Wait for Cisco and Chambers to say "visibility is poor". It's over. Was surprised he and it were even still around since Chambers started off the rolling disaster in 2000. I remember Greenspan slashing rates early 2001 in an absolute panic and the markets taking off like rockets.

Greenspan and the Federal Reserve will save us! Don't fight the Fed, fool. :) Here we go again.
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No. of Recommendations: 7
The usual list of overvalued stocks is in some ways a list of firms whose futures are most uncertain.
So they might be wildly overvalued or not, depending on how the future unfolds.
It is not wise to bet against those.

But a lot of firms are typical product or service firms that are also trading at record breaking valuation levels.
Thus, to me a more interesting question (because I could use it for shorting) is, which relatively *predictable* firms are most overvalued?

NVR?
NVDA?
FMC?

Though they are in fashion for now, maybe also
LYV?
ATVI?
ALGN?

No deep thinking involved on these, I just did some screening.


Separately, buying put options is often not the best way to express a bearish view.
You're betting not just on overvaluation, but also on predictability (often they aren't), and also the expectation that rationality will happen within a given time.
Usually it's better to short a small amount of the stock, and (if you wish) buy something long that you like to offset the exposure a bit.
Best is to short very small amounts of a wide basket of stocks, and never have more than about 10-15% total in shorts.
Another unrelated suggestion: don't short anything while you're still clearly in a long strong bull market.
Wait till it has been at least 3, preferably 5, months since a fresh market high.

Jim
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No. of Recommendations: 16
Below are the 10-year financials from a SaaS company founded in 1999. What multiple of earnings/book/sales would you be willing to pay for it today?

The first thing that jumps out to you is that the company has shown tremendous revenue growth for the last decade. They are clearly taking business from incumbents. However, despite this revenue growth, by every other metric, this company has continued to show itself unable to run the business in a way that generates meaningful profit in line with the revenue trajectory. Perhaps this wonderful revenue growth is only sustainable if the company unprofitably undercuts competitors on pricing? We are now 9 years into an economic expansion, in an era where anything SaaS related is en vogue, and this company still has not found a way to generate meaningful profits? What will happen when an economic downturn hits?


Profitability 2008-01 2009-01 2010-01 2011-01 2012-01 2013-01 2014-01 2015-01 2016-01 2017-01 TTM
Revenue USD Mil 749 1,077 1,306 1,657 2,267 3,050 4,071 5,374 6,667 8,392 9,923
Gross Margin % 77.1 79.5 80.2 80.5 78.4 77.6 76.2 76.0 75.2 73.4 73.2
Operating Income USD Mil 20 64 115 97 -35 -111 -286 -146 115 64 135
Operating Margin % 2.7 5.9 8.8 5.9 -1.5 -3.6 -7.0 -2.7 1.7 0.8 1.4
Net Income USD Mil 18 43 81 64 -12 -270 -232 -263 -47 180 8
Earnings Per Share USD 0.04 0.09 0.16 0.12 -0.02 -0.48 -0.39 -0.42 -0.07 0.26 —
Shares Mil 490 501 512 546 541 565 598 624 662 700 726
Book Value Per Share * USD 0.95 1.26 1.69 2.40 2.90 3.56 4.77 5.83 7.08 9.62 12.22
Free Cash Flow Per Share * USD 0.33 0.35 0.39 0.17 0.78 0.93 1.03 1.17 0.97 2.14 —
Working Capital USD Mil 135 302 798 -202 -651 -902 -1,300 -840 -1,270 -1,262
Net Margin % 2.45 4.03 6.18 3.89 -0.51 -8.87 -5.70 -4.89 -0.71 2.14 0.09
Return on Assets % 2.09 3.38 4.10 2.32 -0.32 -5.58 -3.16 -2.65 -0.40 1.18 0.05
Financial Leverage (Average) 2.41 2.20 2.36 2.42 2.62 2.39 3.01 2.69 2.55 2.34 1.98
Return on Equity % 5.00 7.73 9.41 5.56 -0.81 -13.85 -8.67 -7.49 -1.06 2.87 0.11
Return on Invested Capital % -1.67 3.57 7.52 3.72 -0.82 -10.53 -3.62 -3.83 0.16 3.31 0.99


On a related sidenote, you'll notice that the sharecount has steadily increased as well. If you listen to the company conference call, management could not be more enthusiastic about the future, and will always spend the first half of the conference calls discussing their favorite non-GAAP "deferred revenue" metric. Contrary to all the perceived enthusiasm on the conference calls, company insiders have overwhelmingly been net sellers of the stock over the last 12 months (452 insider sells vs 45 buys) http://www.nasdaq.com/symbol/crm/insider-trades

So, knowing all of the above, what will Mr. Market charge us to own a piece of this business today?

Price: $104.01
Company: Salesforce
Ticker: CRM
Forward P/E: 60.5X
P/B: 8.5X
P/S: 7.52X
P/FCF: 37.3X


I believe this company could trade down to $20 per share if we ever got hit with another 2000-2003 or 2008-magnitude bear market.
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So, knowing all of the above, what will Mr. Market charge us to own a piece of this business today?

Price: $104.01
Company: Salesforce
Ticker: CRM
Forward P/E: 60.5X
P/B: 8.5X
P/S: 7.52X
P/FCF: 37.3X



In the below table the SGA and RD expenses are expressed as % of sales.



MSFT ORCL IBM CRM
SGA 22.5% 24.5% 24.7% 56.7%
RD 14.5% 16.2% 5.3% 15.1%

Total 37.0% 41.0% 30.0% 72%



So there is about 30% of excess SGA spend for growth, which is $3B at current run rate and if you take 33% tax and assume only $2B falls to the bottom line, that is about $3 EPS. Suddenly the stock is not that expensive.

Interesting! Equally interesting is to looking at useless metrics like BV. At least the poster is not arguing if you eliminate "goodwill and intangibles" the company has no book value and hence worth $0.

$20 is still better than $10.
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No. of Recommendations: 4
StevesStox,

I'm in great sympathy with your view of this business. Yet if we believe the market is a
weighing machine, either we need to call in a repairman or we need to reassess how we value
a business like this one.

IPO was in the summer of 2004. Close to a 27% annualized return over 13 years since then.

If you bought at the peak in 2006 before the financial crisis, your annualized return today is
about 21%. It dropped 66% peak to trough, but then recovered.

If you look at rolling 1-year annualized returns since June 2004 to June 2017, min was -60%,
max was 211%, median was 28%, mean was 36%.

For rolling 3-year annualized, min was -15%, max 75%, median 25%, mean 28%.

For rolling 5-year annualized, min 9%, max 58%, median 27%, mean 29%.

For rolling 10-year annualized, min is 19%, max 36%, median 28%, mean 27%.

Incidentally, company insiders have been net sellers for the last 12 *years*. The CEO alone
has sold over 1.6 billion since 2005. This year he was number 2 on As You Sow's list of the top
100 most overpaid CEOs. He's been top 10 the last three years.

Thanks,
Ears
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The problem with CRM is that it just keeps growing and growing. Many have predicted it's
demise due to overvaluation. But the trend is real and the stuff works. The SAAS model for
CRM is hugely less expensive than the legacy software model that Oracle/PeopleSoft/SAP era
companies sold. The implementation costs for those was enormous and customization a tremendously
time-consuming and expensive effort. When the bulk of the market eventually moves to the SAAS
model - then the expensive sales forces can be cut, cost go down - and CRM makes plenty of
money, since so much of their revenue ramp is due to high paid enterprise sales forces.
If you can figure out the timing on that one - good luck.
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Another unrelated suggestion: don't short anything while you're still clearly in a long strong bull market.
Wait till it has been at least 3, preferably 5, months since a fresh market high.


That'll never happen.

Virtually nobody is willing to wait that length of time to see things playing out. At least, that's the impression I get from reading all the posts here and on other boards...people are standing with one foot out the door waiting to jump the instant "something" happens. No patience, gotta act now, now, now.

Heck, look at all the doom-and-gloom articles floating around about how the market is so overvalued and sure to crash --- any. day. now.

Interesting times.
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Virtually nobody is willing to wait that length of time to see things playing out. At least, that's the impression I get from reading all the posts here and on other boards..<\i>

You should be aware that posters here are not at all representative of all the people out there. Have you never noticed the lack of CEOs and billionaires, for example, among the posters?
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