Adding to the Avoidance List

Before I move on to more interesting and exciting topics like playoff baseball and the Florida-LSU game this weekend, I want to spend a little more time on avoidance. There are some stocks and sectors that I believe should be avoided by long-term investors right now.  Many sectors have seen a strong rebound this year and the stocks are no longer safe or cheap. Buying them exposes you to the possibility of stating a permanent loss of capital if the price declines to reflect worsening fundamentals and a more reasonable valuation. The key to success in the markets for individual investors is to survive.  If we focus on safe and cheap while avoiding the over-loved and overvalued, we ensure our survival and the upside will take care of itself.

One group that really stands out is the homebuilders. I suggested buying this group at the end of last year when it was the worst-performing sector in the market. Today, it is one of the best-performing sectors on a year-to-date basis. Investors are anticipating a recovery in the building market and have been aggressive buyers of the builders. Toll Brothers (TOL) has seen its stock price rise by almost 70% over the past year. PulteGroup (PHM) has soared by more than 150% over the same period. If you were lucky enough to catch the ride from ugly duckling to darling, it is time to take some money off the table. If you missed the move, resist the urge to chase these stocks no matter how many bullish research reports you may read....450 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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