As the market hits new highs, technical analysts are seeing danger signs. On Nov. 19 the share of Standard & Poor's 500-stock index companies whose price gains beat the performance of the overall index dropped below 40%. That's a cautionary sign, since it means fewer stocks are taking part in the rally. Just in November, as of the 19th, the S&P 500 had climbed 6%, advancing its year-to-date rise to more than 24%. Typically, in bull markets, about half the stocks in the index outperform. "There has been a higher probability that a stock purchased 20 days ago would have underperformed, not outperformed," explained analysts at New York research firm Concept Capital in a Nov. 19 newsletter. Over the last 180 trading days, food packager MeadWestvaco (MWV) is the only S&P 500 company to beat the index more than 60% of the time. Four companies—Exxon Mobil (XOM), Southern Co. (SO), Quanta Services (PWR), and Robert Half International (RHI)—outperformed less than 40% of the time.
Emerging Markets: Tupperwhere?
This isn't your mother's Tupperware. The name conjures images of plastic containers and suburban afternoon parties. At the Morgan Stanley (MS) Consumer & Retail Conference on Nov. 19, Tupperware Brands' (TUP) CEO sold the company as something else entirely: an emerging markets play. It has always been an international business, but sales came primarily from developed markets. With the purchase of Sara Lee's (SLE) cosmetics brands in 2005, the company made a big play for Latin America and Asia. Now roughly half of revenues come from emerging markets, and a weak U.S. dollar makes its container and beauty products cheaper in such places as Brazil. That should drive growth, says Ragen Stienke, manager of WHG SMidCap Fund (WHGMX). Shares, at 46.49, are up 105% this year. Stienke believes "there's a great deal more upside if you take a three-year view." The average analyst 12-month target is 52.
Sometimes market appetites push a stock higher than any reasonable measure of its worth. A BusinessWeek screen of companies that have inspired feeding frenzies over the past year turned up a range of businesses that, while perhaps deserving of premium valuations, look a bit pricey.
Take Amazon.com (AMZN). Many investors see good growth prospects, but its stock is up 279% from a year ago. According to data provider Capital IQ (MHP), Amazon's price-earnings ratio based on projected earnings for the next 12 months is 57.4. The S&P 500's projected p-e is 14.9.
Shares of health-care information-tech company Cerner (CERN) also look rich. As policymakers focus on improving the health-care industry's use of technology, Cerner's shares shot up 155% in the past 12 months. But its industry is highly regulated and very competitive. Another highflier: Intuitive Surgical (ISRG). Shares in the robotic surgery pioneer are up 230% since March. Capital IQ says analysts give the company a target price of about 254, 9% below its current price.