With the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) hovering near a seven-year high, it can be difficult to know which stocks are still worth your money. That is especially the case for the nation's blue-chip stocks, many of which have rallied to never-before-seen heights.
Here are three of the market's hottest stocks right now and my thoughts on whether they're a buy, sell or hold.
- Medibank Private Ltd (ASX: MPL)
In the time since Medibank Private listed on the ASX in November last year, the stock has rallied a remarkable 23.5%, giving it a market value of roughly $7 billion. The shares are now trading at $2.47 after having risen as high as $2.59 recently and boast a price-earnings multiple of roughly 27x.
At that price, Medibank is considerably more expensive than the average ASX 200 company. It seems that investors have already priced in enormous cost reductions and efficiency improvements which could take years to eventuate. As Australia's largest health insurer, Medibank Private is obviously a quality company but it seems expensive right now, making it a 'hold' at best.
- Commonwealth Bank of Australia (ASX: CBA)
Australia's largest bank has been one of the market's hottest stocks for years. Given Australia's low interest rates and uncertain economic environment, investors have flocked to the stock in search of security and its enormous fully franked dividend yield. Although the stock has retreated marginally over the last week, it is still sitting near an all-time high at $91.09 with a price-earnings ratio of 17.2x.
Although I have thus far been proven wrong in saying that Commonwealth Bank of Australia shares should be avoided, I still stand by my conviction: they are both expensive and dangerous. In fact, Commonwealth Bank is one of the most expensive bank stocks in the world and is being lifted by its solid dividend yield rather than basic investing logic (that is, paying attention to a stock's price).
While the stock could continue to rise in the near-term, it certainly doesn't present as good value for long-term investors. I'd be inclined to sell and put my money to work in something presenting as greater value.
- Coca-Cola Amatil Ltd (ASX: CCL)
The beverage manufacturer suffered a disastrous run over the last two years which resulted in its shares losing more than 40% of their value. Indeed, the selloff was largely justified, too, considering the string of profit warnings issued by the company in that time.
However, under the new management of Alison Watkins, the boat appears to have steadied with no further profit downgrades expected. Although the stock has recovered some of its value as a result, it still appears the market is playing it safe with the shares trading at just $10.54. While the issues facing the business will by no means be an overnight fix, the stock is certainly presenting as great value today. When you also consider the company's generous 4% dividend yield, Coca-Cola Amatil is a 'buy' in my opinion.
