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Jeff Reeves
April 14, 2011, 12:01 a.m. EDT
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By Jeff Reeves
ROCKVILLE, Md. (MarketWatch) "” While every investor knows it's important to make the right buys, making the right sells is equally important when it comes to protecting your nest egg.
In fact, it may even be more important, since the climb up is always bigger than the ride down.
Let's say you lose 20% of a $5,000 investment. Now you're at $4,000 "” meaning you'll have to earn 25% to get back to square. Even worse is if you lose 50% to $2,500. Now you'll have to "double" your money just to break even.
But sometimes it's just not worth the wait. If your investment only rebounds a few percentage points while the rest of the market moves significantly higher, recording a loss on that position and moving on was the right move for your overall portfolio.
To help you pull the trigger and move on to greener pastures, here are seven big-name stocks I recommend selling immediately. Of course, each investor has his or her own strategy "” and a one-size-fits-all approach doesn't always apply.
For instance, income investors may not be too concerned that Wal-Mart Stores Inc. /quotes/comstock/13*!wmt/quotes/nls/wmt (WMT 53.63, +0.11, +0.21%) has underperformed if they find value in the 2.7% yield. And of course, swing traders should pay much closer attention to immediate headlines and market trends. Some of these picks may have a few good weeks ahead of them, though I am bearish on all across the next several months.
That said, for medium-term to long-term investors "” folks who trade a few stocks a month and strive for long-term capital gains when possible "” you would be wise to take a serious look at these seven holdings and consider selling now.
I am a loyal and regular patron of the Chipotle Mexican Grill /quotes/comstock/13*!cmg/quotes/nls/cmg (CMG 281.31, +7.01, +2.56%) in the Falls Grove shopping center down the street. But as an investor, I'm simply not buying this stock. Beef prices are rising tremendously, though CMG stock is up 60% since Oct. 1 and has seen little sign of stopping. The company has to see these inflationary trends eating into earnings eventually. What's more, a trailing P/E of 48 and forward P/E of 33 are astronomically rich when compared to competitors in all corners of the restaurant business that are mostly the mid teens. The closest I could find was Wendy's/Arby's Group Inc. /quotes/comstock/13*!wen/quotes/nls/wen (WEN 4.81, +0.01, +0.21%) with a forward P/E of 22.
We've seen this movie before with the mega-growth of cult franchises like Starbucks Corp. /quotes/comstock/15*!sbux/quotes/nls/sbux (SBUX 35.81, +0.04, +0.10%) and Krispy Kreme Doughnuts Inc. /quotes/comstock/13*!kkd/quotes/nls/kkd (KKD 5.51, -0.01, -0.18%) crashing to a halt that leaves stock owners holding the bag. Get out while the getting is good.
International retail giant Wal-Mart Stores has watched its stock price decline 6% since the end of January, and 2% over the past 12 months. By contrast, the S&P 500 /quotes/comstock/21z!i1:in\x (SPX 1,314.41, +0.25, +0.02%) is up about 2% and 10%, respectively, in those same periods. After seven straight quarters of same-store sales declines, it's no surprise UBS cut Wal-Mart from "buy" to "neutral" in February.
Wal-Mart is returning so-called "heritage" products to shelves to reverse 7 consecutive quarters of sales declines at U.S. stores open at least a year.
The company recently announced plans to revisit its low-price branding, but in my book that's as damning a fact as any you can find. Less than a year ago, newly minted president and chief executive of the company's U.S. operations, Bill Simon, demanded the company add up to 25% more items on the shelves and focus on product selection and quality instead of pricing. This move is quite the about-face, and that indicates trouble. Read about Wal-Mart's latest plan to reverse its U.S. declines.
Either the brand has finally been crippled by long-simmering angst and recent lawsuits, or the company has simply mismanaged itself into a very deep hole. Whatever the case, investors should steer clear. Read about eight struggling consumer stocks that scream "?no sale' on InvestorPlace.com.
Apple's iPad appears to be sucking the growth out of the personal computer and market research firms issuing unusual warnings about the state of PCs.
8:47 p.m. April 13, 2011
"Hong Kong stocks fall, with airlines, energy shares weak; Hang Seng Index down 0.7% http://on.mktw.net/eMZuRa" 8:34 p.m. EDT, April 13, 2011 from MarketWatch
"Japanese stocks open lower with tech shares weak; Nikkei Average down 0.8% http://on.mktw.net/ftvegW" 7:08 p.m. EDT, April 13, 2011 from MarketWatch
"Eyes are on Wells Fargo in wake of J.P. Morgan http://bit.ly/dJSDlY" 5:32 p.m. EDT, April 13, 2011 from MarketWatch
"Barry Bonds guilty of obstructing justice, jury deadlocked on other charges: reports http://on.mktw.net/hUEm9m" 4:52 p.m. EDT, April 13, 2011 from MarketWatch
"#IPO pricings to highlight after-hours session http://bit.ly/gAOOa4" 4:31 p.m. EDT, April 13, 2011 from MarketWatch
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