In the wake of the subprime lending crisis, many stock investing positions are selling far below their fair value. The year 2009 will exciting for investors who know how to sort the wheat from the chaff. Opportunities will abound, but not every stock is bargain. Some companies are still overvalued, even at their current price. Here are a few companies to avoid when revamping your portfolio.
1. Sequenom (SQNM)
This biotechnology company makes genetic testing equipment for research and clinical applications. Their most impressive products involve prenatal diagnostic testing. The problem is that much of the technology produced by Sequenom has cheaper analogs produced by other companies. In the current economy, patients are unlikely to pay for tests not covered by insurance, and research grant money is tight. There will not be enough demand for Sequenom’s products to boost their bottom line anytime soon. With a price/book ratio of 19 and diluted EPS of -0.78, the financial health of this company is not strong and will only get worse.
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2. Mastercard Incorporated (MA)
Recession mentality is causing consumers to cut back on purchases, which means credit cards are not earning merchant fees. Soaring unemployment means that more and more cardholders will be unable to pay their balances, forcing the credit card companies to hire collection agencies or write off the loss. Earnings per share: -1.45. Price/book ratio: 11. Avoiding a long position on MA: priceless.
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3. The Princeton Review (REVU)
With a diluted EPS of -0.68, The Princeton Review is not making the grade and is unlikely to improve in 2009. The company provides educational materials as well as test preparation services for exams such as the GRE and MCAT. Students strapped for cash are not going to spend it on expensive test preparation materials. Instead, potential test-takers will be more likely to search for free materials online or check out books from the library.
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4. SuccessFactors, Inc. (SFSF)
This business software provider has been steadily losing money since 2005. In such a competitive industry and such tough economic times, it’s no surprise that SuccessFactors is anything but successful, with diluted EPS of -1.64. We may see a short term boost for this stock due to the selection of Nancy Killefer as CPO by President Elect Obama, however the fundamentals for SFSF show no reason to expect long term performance.
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5. American Spectrum Realty (AQQ)
The year 2009 is too soon to jump into real-estate related investments in general, and American Spectrum Realty in particular. Like the main character in a recent movie, this stock seems cursed with the number twenty three. With a price/book ratio of 23 and net tangible assets plummeting exponentially for the past several quarters American Spectrum Realty is overpriced at $23/share.
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Investor’s considering taking a risk on these company’s stocks or similarly risky stocks, in which stock options are available, might want to consider using stock options to protect their positions from downside moves. A put option purchased for a stock investing position can provide “stock insurance” while enabling an investor to participate in the upside movement of the stock. A married put stock options position can provide an investor the means to generate income by applying other stock options strategies, covered calls and bear-call credit spreads, for example.
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Technorati Tags: subprime, lending crisis, investors, biotechnology, genetic, prenatal, GRE, MCAT, Nancy Killefer, CPO, real-estate, MA, MasterCard Inc., bear-call credit spreads, covered call investment strategy, investment strategy, iron condor, poweroptions, stock insurance, stock investing, stock option trading, stock options