BE CAREFUL WHEN BUYING QUALITY, ARE THEY PRICED FOR PERFECTION?

When going through some of the stocks mentioned on this blog and how they performed I came across some previous posts I made about warning of buying “quality” companies because they were demanding high valuations at the time.

At the time, I specifically highlighted a broker report on July 27th that listed 10 “champion” stocks. During July, I made some blog posts that you can reference through the archives searching the July posts on July 16th, 18th & 27th. Everything touched on the dangers of searching for high growth market darlings in exciting sectors with dangerously high multiples. I felt at the time that way of thinking was becoming a little dangerous in the market. Recently I had an inkling that those sorts of companies had been weakening of late but didn’t know to what extent until I decided to go back and have a look at the list. I commented at the time about Dominos Pizza and the health care sector looking dangerous so I have added a few major health care stocks and Dominos to examine how they had fared.

In only 3 months the list of 14 stocks on average is down by nearly 10%. It makes me wonder whether I should have shorted some of these to give me more scope to invest in more of my buy ideas this year. Of course, these are the types of companies the brokers can easily just say relax and not worry about the short-term performance. That is why at times they probably become a little over-rated by the stockbroking community. Be careful when you are about to jump on a market darling. Below is the list.

27/7 PRICE 28/10 PRICE
(INC ANY RETURN
DIVVY)
THE TEN ‘CHAMPION” BROKER PICKS
APA 9.72 7.89 -19%
TCL 12.45 10.25 -18%
CGF 9.33 10.905 17%
LLC 13.34 13.62 2%
GMG 7.51 6.66 -11%
LNK 8.6 7.41 -14%
CSL 117.86 100.2067 -15%
SHL 22.93 20.75 -10%
TTS 4.03 4.13 2%
BXB 13.43 11.565 -14%
DMP& SOME HEALTH STOCKS
DMP 74.33 64.788 -13%
BKL 158.75 110.94 -30%
RHC 77.92 72.46 -7%
COH 129.62 127.2 -2%
AVERAGE -9%
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