This bull market never stops charging. Now in its ninth year, the current winning streak has delivered a 342% cumulative gain in Standard & Poor’s 500-stock index since its 2009 low. In 2017 alone, the Dow Jones industrial average has hit a new record closing high more than 40 times.
We don’t think this bull is ready to quit stomping yet, but investors might want to play it safe by locking in profits on some top-performing positions. We’ve picked five stocks that each deserve a generous trimming. Four of our picks have solid business prospects, but not promising enough to justify inflated stock prices buoyed by excessive optimism. The last name on our list, Twitter, faces a deteriorating outlook. Consider pruning these names as part of an overall portfolio rebalancing (for more defensive moves to make if you are worried about stocks retreating, see 5 Ways to Protect Your Portfolio in a Stock Market Correction).
Hulu may have cleaned up at the Emmys this year, but Netflix has been winning investors’ hearts. Shares of the streaming service surged 89.7% in the 12 months ending September 26, thanks to optimism about its ability to continue to attract millions more users in the U.S. and abroad. The stock spiked 14% the day after Netflix reported results for the second quarter, when the company added more users both internationally and at home than the company had been forecasting.
Investors may be seeing green in Netflix’s subscriber numbers, but they’re also ignoring plenty of red on its cash-flow statement. The last time Netflix generated positive free cash flow (the cash profits a company generates annually after making the capital expenditures necessary to maintain the business) was in 2013, and the shortfall has grown every year since. That’s because Netflix pays a tremendous amount to produce its own award-winning content and to license top shows and films from other providers. Netflix must continue to spend aggressively on both fronts to attract and hold on to customers, who pay no switching costs to change streaming services. And all that spending still doesn’t guarantee Netflix the hottest content: In August, Walt Disney Co. (DIS) announced it would stop licensing films to Netflix at the end of 2018 and would instead launch its own streaming service.
Netflix bulls say strong international growth justifies its exceptionally high price-earnings ratio. But we think hot air is playing a part, too. Consider selling some shares before the market cools.