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My Stupid Valuation Screener

B-B-But It's Overvalued!

We've heard this story dozens of times over the past year. A company's stock has seen a mindblowing upside run and the prospects of whether the company can maintain its growth come into question. Then we throw out some pundits on CNBC to defend their bearish thesis, and the message boards clamor for the death of the company...

And it still goes higher.

What names come to mind? NFLX, CRM, GMCR, LULU. These are some of the most hated stocks out there, but the momentum is beautiful when they run.

If the market ever starts to turn up, we'll see some of these names start to pick up, in spite of the high valuations and supposed slowing growth. I think there's a way to find some great setups in these names.

My Screener

So here's what I look for:

  • Market Cap: >2B
  • Average Volume: >200k
  • P/E: >30
  • Float Short: >10%
  • Price above 50 and 200 moving averages

I've got a Finviz Screener setup to show you exactly what I'm looking at, you can view it here. The names are ranked by short interest.

Already you can see some familiar names, those mentioned earlier. I'll post some charts at the bottom of the page.

Why Should These Outperform?

These aren't a list of names that are guaranteed to go higher. In fact, they can see a tremendous move to the downside once the trend finally changes. FFIV, for example, has been on this list in the past but has seen about a 50 point downmove over the past few months.

That's why we have the technicals included. These are the names that did not get poleaxed during the recent correction, and this is going to infuriate the shorts. Imagine the inner dialogue of our typical short:

What the f*ck? Why isn't this going lower? The P/E is absurdly high and there's no way they can sell more {subscribers, k-cups, servers} and keep this growth up. I read on my favorite blog on how it's overbought and there's a weekly fibo-mac-d crossover. Maybe I'll double down to help my position.

Yes, there is a little schadenfreude going on here, but it's just a market.

Anyways, there's an absurd amount of impatience that these didn't rollover with the rest of the market, and that impatience often provides increased demand in these names.

Can you also play these names to the short side? Of course... eventually. Valuations often come into line and growth does eventually slow. And when they do, they are great downside trades.

Remember, ideas are just ideas. Risk management and structure is key to making money, and I do a pretty good job of it using options. Check out my premium service if you want to learn how to do this.

My Charts

Here's some plays I'm looking at:

GMCR

OPEN

RAX

 

ANR

 

FAST


by Steven Place

Steven Place is the founder and head trader at investingwithoptions.com/