Stocks are looking pretty overbought and overvalued right now, and we think the time is right to start shorting some things that are the most egregiously pumped up on hope right now. The following 5 stocks trade at multiples only an investment banker could love, and we have some suggestions on how to play the short side here using options to limit your risk.
While we are long term bears on the dollar and certainly think the overall market will be higher in five or ten years than it is today, we also know that nothing moves straight up or straight down. Buying low and selling high means right now is the time to sell, not buy these 5 momentum stocks.
Salesforce.com (CRM) — Saleforce.com is trading at astronomical multiples of cash flows, earnings, and book values. Projections seem to be far too rosy when compared with current financial statements in our view and now may be the time to short this again. Cash flows are almost entirely generated through rising short term debt or increasing payables here and to us that is a huge red flag. Revenue growth without corresponding profit growth should be also be a red flag for most investors. The “cloud revolution” may not be as revolutionary as once imagined and even if it is, it looks to us like Microsoft, Google, and Oracle will be the bigger players in this arena.