Here Are 5 Of The Most Classically Overvalued Stocks On The NASDAQ

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What stocks would be found if we reversed the classic value stock methods of Warren Buffett's mentor Benjamin Graham? What if we turned the process on its head and looked only for those equities trading at the highest price/earnings ratios and at much greater than book value? Do any well-known, heavily traded stocks like this exist?

Well, yes, they do exist. It's not that surprising given that we're in the middle of a years-long bull market. Here are 5 NASDAQ stocks that meet the reverse value criteria:

1. Amazon. CEO Jeff Bezos is a genius who seems to do everything right. Amazon is taking over all of retail and that includes supermarket shelves now that it has swallowed Whole Foods. That's the bullish narrative, in a nutshell, and is said to explain the reasons that the stock has a price/earnings ratio of 247 at a time when the cyclically adjusted p/e for the S&P 500 is about 31. Investors have priced in future tremendous success for the company and they may be right, who knows? Good to keep in mind, though, that a p/e of 240 is 8 times that of the market taken as a whole. Amazon is #3 on the Forbes Most Innovative list.
2. Broadcom Limited. The price/earnings raio of 200 appears to be a temporary phenomenon related to a difficult earnings quarter -- the forward p/e of 14 seems more reasonable. On the other hand, the 6-month "change in inside ownership" shows 21% fewer insiders now own it, according to stats provided by FinViz.com. This Singapore semiconductor stock traded at $170/share in January and now goes for $240 -- a substantial gain for such a short period.
3. Ionis Pharmaceuticals. This drug  and biotech manufacturer has a price/earnings ratio of 266 and is trading at 32 times book value. As with many biotechs, stocks in this sector can move quickly: Ionis jumped from $40/share to $60 this year between April and July. Analysts are expecting exceptionally good earnings over the next few quarters. Looks like that expectation may be priced in. The 6-month change in insider ownership is -35%. Debt is almost 3 times equity.
4. Netflix. The internet and catalog retailer started the year at $120/share and now trades at $196. A nice move which takes the price/earnings ratio to 238.  The company has put together a nice string of positive earnings quarters. Couple of items to consider: the stock is now selling at 26 times its book value. The 6-month change in insider ownership is -68%. Many brokerage houses have Netflix on their buy or outperform list -- Wells Fargo, UBS and Oppenheimer, for example. The company is #5 on the Forbes Most Innovative list.
5. Vertex. This is another company showing steady and solid earnings gains. The price/earnings ratio is 147, so some analysts might conclude that the market is expecting those earnings to continue. The price to book ratio is 22, so we're way out of  "value stock" territory with Vertex. That 6-month change in insider ownership hits -50%. The stock has doubled in price since the beginning of this year. The company is #17 on the Forbes Most Innovative list.

Uptrends in stock prices can continue for much longer than you would think.

Same thing with high price/earnings ratios -- they might just continue to stay elevated or even climb further. It's not necessarily a signal to sell or to short.

What can be said is that those investors who study financials and price with an eye toward value -- such as Warren Buffett -- will likely be looking at adding other stocks right now, not any on this list.

 

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Shutterstock

What stocks would be found if we reversed the classic value stock methods of Warren Buffett's mentor Benjamin Graham? What if we turned the process on its head and looked only for those equities trading at the highest price/earnings ratios and at much greater than book value? Do any well-known, heavily traded stocks like this exist?

Well, yes, they do exist. It's not that surprising given that we're in the middle of a years-long bull market. Here are 5 NASDAQ stocks that meet the reverse value criteria:

1. Amazon. CEO Jeff Bezos is a genius who seems to do everything right. Amazon is taking over all of retail and that includes supermarket shelves now that it has swallowed Whole Foods. That's the bullish narrative, in a nutshell, and is said to explain the reasons that the stock has a price/earnings ratio of 247 at a time when the cyclically adjusted p/e for the S&P 500 is about 31. Investors have priced in future tremendous success for the company and they may be right, who knows? Good to keep in mind, though, that a p/e of 240 is 8 times that of the market taken as a whole. Amazon is #3 on the Forbes Most Innovative list.
2. Broadcom Limited. The price/earnings raio of 200 appears to be a temporary phenomenon related to a difficult earnings quarter -- the forward p/e of 14 seems more reasonable. On the other hand, the 6-month "change in inside ownership" shows 21% fewer insiders now own it, according to stats provided by FinViz.com. This Singapore semiconductor stock traded at $170/share in January and now goes for $240 -- a substantial gain for such a short period.
3. Ionis Pharmaceuticals. This drug  and biotech manufacturer has a price/earnings ratio of 266 and is trading at 32 times book value. As with many biotechs, stocks in this sector can move quickly: Ionis jumped from $40/share to $60 this year between April and July. Analysts are expecting exceptionally good earnings over the next few quarters. Looks like that expectation may be priced in. The 6-month change in insider ownership is -35%. Debt is almost 3 times equity.
4. Netflix. The internet and catalog retailer started the year at $120/share and now trades at $196. A nice move which takes the price/earnings ratio to 238.  The company has put together a nice string of positive earnings quarters. Couple of items to consider: the stock is now selling at 26 times its book value. The 6-month change in insider ownership is -68%. Many brokerage houses have Netflix on their buy or outperform list -- Wells Fargo, UBS and Oppenheimer, for example. The company is #5 on the Forbes Most Innovative list.
5. Vertex. This is another company showing steady and solid earnings gains. The price/earnings ratio is 147, so some analysts might conclude that the market is expecting those earnings to continue. The price to book ratio is 22, so we're way out of  "value stock" territory with Vertex. That 6-month change in insider ownership hits -50%. The stock has doubled in price since the beginning of this year. The company is #17 on the Forbes Most Innovative list.

Uptrends in stock prices can continue for much longer than you would think.

Same thing with high price/earnings ratios -- they might just continue to stay elevated or even climb further. It's not necessarily a signal to sell or to short.

What can be said is that those investors who study financials and price with an eye toward value -- such as Warren Buffett -- will likely be looking at adding other stocks right now, not any on this list.

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