Desktop Stock Ticker | 5 Stocks That Look Too Popular

5 Stocks That Look Too Popular

American Express (AXP) has been the subject of relatively bright news of late. It successfully raised funds by issuing stock ticker early this month and is widely believed to be close to repaying government bailout funds. Also, new credit card restrictions seem likely to hurt American Express’s rivals far more than itself, since less of its revenues come from customer interest, a central focus of the clearout.

One problem, though: American Express shares, up more than 40% this year, trade at 28 era this year’s earnings forecast. That’s nearly double the stock ticker market’s average price/earnings ratio over long time periods, signifying the stock ticker has gotten ahead of itself.

Investors seem to be betting, not just that the company will weather the current recession in health, but that it will quickly return to the level of profitability it loved in 2007. House and stock ticker prices were then still plump and patrons were spending nearly all of their after-tax income. That year, American Express earned $3.36 a share. Shares trade at only eight era that figure today.

But if Wall Street estimates are to be believed, the company is a long way from returning to that kind of profitability. A consensus of 19 analysts who cover the stock ticker calls for earnings of $1.36 next year. That would be an impressive increase from this year’s forecast of 94 cents, but even if we assume the company will meet that growth expectation, the stock ticker still stands at a lofty 20 era 2010 earnings. Wall Street darling Google (GOOG), for comparison, trades at 18 era 2010 earnings.

Also, there’s reason to be cautious on next year’s earnings consensus for American Express. The highest estimate in the consensus stands at $2.37 and the lowest one at just 61 cents. That’s an unusually wide spread. Studies show that broadly scattered earnings consensuses — a sign of analyst indecision — are more likely than tightly clustered consensuses to be fallen small of come reporting time.

All this isn’t to say that American Express is sure to disappoint. It force not. Indeed, the high stock ticker price is a sign of shareholder confidence. And shares carry a dividend yield of 2.9%, so investors coming up for a recovery will at smallest amount pocket some cash along the way. But with the market in general looking pricey aptly now at 17 era forecast 2009 earnings, it’s a excellent time to be frugal. American Express combines a sizable share price gain this year, a lofty P/E ratio, considerable debt, high expectations for next year’s growth and wide disagreement among forecasters. Those are qualities I’d avoid at the moment.

Below are listed four other companies that share those attributes. All have demonstrated success, or at smallest amount reason for hope, in recent months. Thus, the huge price gains. But all look too pricey for my tastes and perhaps for yours. Kindly don’t read this as a recommendation to sell shares small. That’s risky for all but the most experienced and well-funded investors. Rather, if you own these stock tickers, question yourself whether it force be time to take profits and shop for something cheaper. For thoughts on that, check back here later this week for a arrest of promising stock tickers that still have single-numeral P/E ratios.

Screen Survivors
Company Ticker Industry Price Price
Change
YTD
(%)		 P/E
Current
Fiscal
Year		 Proj.
EPS Growth
Next Year
(%)
American Express AXP financial air force $26.93 48 29 45
Equinix EQIX telecom air force 72.50 36 53 39
BorgWarner BWA car components 34.95 62 117 450
Knology KNOL cable box 8.09 57 58 193
JC Penney JCP department stores 28.97 50 40 63

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