3 High-Flying Stocks To Sell Before A Bear Market

Recently featured three safe stocks to get you through a bear market. This week I'm going in the opposite direction and picking three stocks that performed well in 2018 but look overvalued as the market grows more volatile.Advanced Micro Devices (AMD), TripAdvisor (TRIP), and Advance Auto Parts (AAP) are this week’s Danger Zone picks. Price Increase Leads to Overvaluation It should come as no surprise that many of the top-performing S&P 500 stocks for 2018 now earn an unattractive-or-worse rating. Anytime a stock nearly doubles in one year, there’s a good chance it will become overvalued. Figure 1 shows the 2018 performance and the price to economic book value (PEBV) for the top three performing stocks in the S&P 500. Economic book value represents the zero-growth value of a company’s cash flows, so all three companies have a valuation at least four times higher than their zero-growth value. For comparison, the weighted-average PEBV for the S&P 500 is 2.6. Advanced Micro Devices is a global semiconductor company. The company is one of the smaller players in most of its product lines, except for graphics processing units (GPU’s), where it operates in a virtual duopoly with Nvidia (NVDA).AMD drastically outperformed the market this year as it took GPU market share away from NVDA and analysts perceived opportunities for the company to capitalize on struggles at Intel (INTC). Reported earnings growth also helped drive the stock increase, as GAAP EPS increased 546% TTM to $0.32/share.However, GAAP earnings growth is overstated due to a $19 million one-time gain from tax reform (5% of GAAP net income) and understated earnings in the previous TTM period. Net operating profit after tax (NOPAT) grew by 36% TTM, still impressive, but not as big an improvement as GAAP EPS.