The market has completely forgotten about its Japanese nuclear worries and has even brushed off the ominous threat of debt downgrade by S&P last week. Stocks are climbing one huge wall of worry to hit multi-year highs. I can’t help but think some of the bulls are getting a bit greedy up here, especially with some of the higher-valued stocks that have been defying gravity. These will be first to get hit hard during any market correction. I worry that speculation will cool off a lot once the Fed removes the proverbial punch bowl in the form of QE2 in June.
What Goes Up….
OpenTable (OPEN) has been on fire to say the least over the past year. The stock has soared to a new high around $115, which is up from its 52-week low of $36. I like the company’s business model of online reservation taking, but investors have gotten a bit too giddy with this one. OPEN is trading at 104x current-year estimates of $1.10 per share. These are frothy valuations anyway you slice it and investors are playing with fire at these prices.
Chipotle Mexican Grill (CMG) is another stock that has gone into the stratosphere. I think this stock has a bit more terra firma to stand on than OpenTable, but is still overvalued. It is trading at 40.8x 2011 estimates, which is much higher than its peers. Due to its strong growth, it deserves a premium valuation, but this seems excessive. The stock is changing hands around $277 now, which is well above its 52-week low of $124.
Netflix (NFLX) is in many ways the poster child for hot momentum stocks at the moment. It has left many shorts in the dust during its meteoric rise. It is trading at 57.1x 2011 estimates, which even the most ardent bull would have a hard time justifying. It is another company with a wonderful business model, but could correct hard during a market downturn.
These three stocks are great companies with strong management teams. However, I think companies like these three will suffer disproportionately in a market selloff as investors cash in their hard-earned gains. Just something to think about.
Sell These 3 High P/E Stocks Now is an article from: 
