Everyone loves a winner, particularly when money is concerned. Everyone wants to pick a winner, too, but when it comes to stocks, figuring out who is going to win is difficult and sometimes frustrating. It is no wonder that many investors choose the short-cut approach of picking a stock that is already winning. This is sometimes a good call, particularly when the whole market is rising, but it is also a dangerous one. When you buy a stock that is rising, you are paying a premium for optimism, and that means you face considerable downside risk if the optimism turns out to be misplaced.
Misplaced optimism, it turns out, is one thing the current market has plenty of. We have identified five companies trading at or near their 52-week highs that now seem overvalued and at risk of turning in the wrong direction. If you own shares of these companies, and are at all risk-averse, we recommend that you jump off the bandwagon now, while the stock prices are still high.