Are these stocks set to disappoint investors and crash?

August is traditionally the main reporting season for the vast majority of ASX-listed companies. Those with June financial year-ends have two months to report results to shareholders – one reason why loads of company release their annual results in the last two weeks of August.

But several could be set to disappoint investors, with expectations too high, according to broker Credit Suisse.

With investors piling into high dividend stocks like the banks, the situation becomes known as a ‘crowded trade’. In other words, prices are pushed to sky high levels by everyone jumping on the bandwagon, and at the first sign of a crack, everyone rushes for the exit. That could see prices sink rapidly.

Credit Suisse says the large cap stocks they see as being owned by everyone, which could also report disappointing results include Henderson Group Plc (ASX: HGG), Beach Energy Limited (ASX: BPT), Computershare Limited (ASX: CPU) and Transpacific Industries Group Ltd (ASX: TPI). All four are up substantially in the past year, with Henderson leading the way with a 79% gain.

The broker says the small cap stocks that are ‘crowded trades’ include Sundance Energy Australia Ltd (ASX: SEA), Sirius Resources N.L (ASX: SIR) and Papillon Resources Limited (ASX: PIR). Papillon in particular has added 124% in the past twelve months, thanks to positive news surrounding its Fekola gold project in Mali, Africa.

Following the crowd, is never a great investment idea. By the time late investors buy in, much of the gains have already been taken, and the downside risks increase dramatically. Trying to get out the door when everyone else is rushing for the exits, is a strategy doomed to failure, and can be hazardous to your wealth.

Some of the stocks above may well disappoint when they report next month, but if the underlying fundamentals of the business are still there, or even better, improving, a cheaper price may be a perfect opportunity to pick up more shares.

It also pays to remember one of Warren Buffett’s best known quotes, “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.

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Motley Fool writer/analyst Mike King owns shares in Sirius Resources. You can follow Mike on Twitter @TMFKinga

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