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When to Sell a Value Stock

Tracey Ryniec

Welcome to Episode #167 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

With stocks soaring to new all-time highs to finish the year, many value investors that had bought previously cheap stocks are finding themselves holding onto big winners.

That’s a fun “problem” to have.

But some of these stocks may no longer be “values” by the P/E ratio or other fundamentals.

When should a value investor sell a stock?

Value Investors: Have a Plan

All investors should have an investing plan. Only you know your goals, your time horizon and your threshold for pain.

It will be different for each investor.

Value investors typically tend to hold for the long-term, however, therefore value investors have to pay particular attention to the companies in their portfolio.

They should ask a host of questions such as: Is the business growing? Is there a good management team in place? Who are the competitors and how much of a threat are they? And more.

Warren Buffett bought IBM and then ended up selling it a few years later because he said the company didn’t perform as expected.

Not every stock buy works out.

Value Stocks at New Highs

But a stock that Buffett owns that he hasn’t sold any of, is Apple AAPL.

Apple shares are up 68% year-to-date and now trade with a forward P/E of 20. It clearly is no longer a cheap stock nor is it a value.

If you own Apple, should you be cashing in on this great rally?

4 Former Value Stocks Also Hitting New Highs

There are other stocks that, a few years ago, used to be value stocks. But they’re also hitting new highs, like Apple.

1.       The Walt Disney Co. DIS is up 39% in 2019 and recently broke out to new highs. It used to trade with an attractive forward P/E of 17 but now it is trading at 26.6x. Earnings are expected to decline 2.7% in fiscal 2020. Should value investors be selling?

2.       Home Depot HD shares hit new highs earlier in the year but have since pulled back on the earnings warnings and lowered guidance. Still, they’re up 28% year-to-date. After the financial crisis, the shares were cheap. But now? They trade with a forward P/E of 21.6.

3.       UnitedHealth Group UNH is under performing the S&P 500 this year, with shares up just 15.6%, on fears of Medicare-for-All grip the health insurer stocks. With a forward P/E of 18.9, is this a buying opportunity?

4.       Union Pacific UNP has rallied big in 2019, with shares up 29.3%. They look close to busting out to new 5-year highs. But while the railroads used to be cheap, now they are not as UNP trades with a forward P/E of 21.1. How much should value investors pay for the rail earnings?

What else should you know about when to sell a stock?

Tune into this week’s podcast to find out. 

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Union Pacific Corporation (UNP) : Free Stock Analysis Report
 
The Walt Disney Company (DIS) : Free Stock Analysis Report
 
The Home Depot, Inc. (HD) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
 
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