The stocks market is acting a little bit nervous, and investors are starting to feel the same way. Despite the fact that this week’s economic news included some of the best data this year, months of climbing equity prices may be starting to give portfolio managers an itchy trigger finger. With stock market indices hitting record highs, who could blame them for wanting to take some profits?
The technology team at UBS tracks overbought and oversold conditions on a regular basis. In a new research report, they point out that in the technology sector chips have been the stellar performers, while Internet stocks have recovered from earlier declines and networking continues to lag. They also highlight stocks that on a 14-day relative strength index (RSI) basis are oversold. We screened for the five highest profile names that made the list this week.
Analog Devices Inc. (NASDAQ: ADI) is a top stock that many on Wall Street are very positive on. The prospects for growth in communications driven by wireless base stations and TD deployments in China look to be outstanding. Recovery is also expected in the industrial sector, and growth is anticipated in the automobile markets over the next year. While it is not trading at 52-week highs, the short-term indicators suggest the stock is very overbought. Investors are treated to a very competitive 2.93% dividend. The Thomson/First Call consensus price target is $57.08. Shares closed Thursday at $50.41.
CDW Corp. (NASDAQ: CDW) had a large secondary stock offering this week, which added to the free-float. CDW came back from private equity land last year with a highly anticipated IPO, and it has gone straight up in price for over a year. It provides information technology (IT) products and services to business, government, education and health care customers in North America. It offers discrete hardware and software products to integrated IT solutions, such as mobility, security, data center optimization, cloud computing, virtualization and collaboration. Short-term indicators suggest the stock is very overbought. Investors are paid a small 0.54% dividend. The consensus price target is $35. CDW closed Thursday at $31.37.
Electronics for Imaging Inc. (NASDAQ: EFII) was a very hot tech stock at the end of the 1990s and into the early 2000s. The company is a worldwide provider of products, technology and services leading the transformation of analog to digital imaging. The firm’s product portfolio includes digital front-end servers; superwide, wide-format, label and ceramic inkjet presses and inks; production workflow, web to print, and business automation software; and office, enterprise and mobile cloud solutions. While not trading at a 52-week high, the stock is considered overbought on a near-term basis by the UBS team. The consensus price target is $50.67, and shares closed Thursday at $43.47.
GoPro Inc. (NASDAQ: GPRO) was this summer’s screaming red-hot IPO stock, and it has more than doubled from the original pricing back in late June, when the wearable camera maker went public at $24 a share. This is really a case of momentum investors jumping in and pushing a good stock to what now is very lofty valuations. Not only is the stock overbought, but momentum names are the proverbial first ones out-the-door in a market sell-off, and one could be just around the corner. The consensus price target is $48.50. The stock closed at $53.08.
Rackspace Hosting Inc. (NYSE: RAX) is up over 10% in the past three weeks and hits the UBS screens as overbought. The company caught Wall Street’s attention back in the spring when it said it was looking at strategic alternatives, which could mean a buyout or merger. Many on Wall Street feel that the solid earnings reports will keep attention focused, but nobody will really care as many investors continue to focus on the strategic alternative news. Rackspace bills itself as the global leader in hybrid cloud and founder of OpenStack, the open-source operating system for the cloud. The consensus price target is $41.11. Rackspace closed Thursday at $37.21.
The overbought conditions by no means indicate that these are not good investments. What it shows is that in the ebb and flow of normal trading, the shares have had far more buyers than sellers. This is a condition that could lead to some large sell orders should the market take a brief, but sharp downturn. Then again, stocks — and the market — can remain in overbought territory for long periods of time.