4 Expensive Stocks To Avoid

By Matthew McCall | May 11, 2012 AAA

The stock markets in the U.S. and abroad have been struggling lately and it's time to be cautious in regards to what stocks you own or are considering purchasing. I ran a screen that searched for all stocks trading above $15/share, a market cap of at least $500 million and a PEG ratio of 3.0 yielded many results. Here are four of those stocks that I would definitely avoid.

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Advertising
Lamar Advertising (Nasdaq:LAMR) provides outdoor advertising services such as billboards, posters and logo signs to local and national customers. The forward P/E ratio on LAMR is near 44.4 and the PEG ratio is around a lofty 24.6. Both valuation numbers are above average and suggest that the stock is overpriced, even as it hits a new multi-month low. The recent breakdown is likely a sign of things to come for LAMR and the entire billboard sector as a whole. With everyone's eyes fixated on computers, it would appear that the future of LAMR could be in question.

Entertainment
Six Flags Entertainment Corp.
(NYSE:SIX) operates theme, water and zoological parks in the U.S. The forward P/E of about 37.2 and PEG ratio around 8.6 puts the stock in the overvalued category. With gas prices high based on historical readings, the regional operator of parks could get hurt with the summer season about to begin. Technically, the stock has done well, as it sits a few points off an all-time high. That and the 5% dividend yield could make SIX attractive to some investors. However, when the valuations are taken into consideration, this stock looks like one to avoid.

SEE: Stock Picking Is Everything

Television
EchoStar Corp
(Nasdaq:SATS) engages in the design and distribution of digital set-top boxes and related products. They work with DISH Network (Nasdaq:DISH) and Slingbox devices. The forward P/E of over 29 is not astonishing, but the PEG ratio of roughly 15.4 is a huge red flag. The stock has been in a downtrend since early February and another 10 to 20% fall would not come as a surprise, considering that there's no true support near the current price. Adding to its worries are whispers that Apple (Nasdaq:AAPL) could be making its own television model in the future.

Utility
National Grid PLC
(NYSE:NGG) owns and operates electricity and gas infrastructure networks in the U.K. and U.S. The stock has been doing well as of late, trading at a new two-year high this week. The forward P/E is low, as it is with most utilities, at about 11.1. However, the 3.1 PEG ratio is enough to scare me away from the solid chart and 4% dividend.

SEE: PEG Ratio Nails Down Value Stocks

The Bottom Line
Just because the stocks look overvalued based on fundamentals, doesn't mean it's a green light to short them. However, I do endorse either selling the shares now or avoiding entering new long positions.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.

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