If a value investor researched a security and concluded that it's over valued and shouldn't be bought, why wouldn't he also conclude, if he owned the stock, that it was time to sell it and wait for it to become undervalued once again. And the only answer I can come up with is that an investor would lose the dividend if out of the stock. I easily counter that argument with the idea that a stock that is overvalued and about to fall to a more normal valuation will lose more than the value of the dividend when it falls. For those that say you haven't made or lost any money until you sell, they're living in a dream. Believe me, it's real money.
Take Chevron. Just looking at the historical P/E ratio it's obvious to me that it's on the high end of the valuation scale. It looks like it's traversed between approximately 7 and 14 over the last few years and today it's P/E ratio is almost 13. It's obviously not the best time to buy, but is it the best time to hold? Not for me but it's something each investor needs to think about.
On 6 January of this year I wrote an article for this site titled "Big Oil" and another article for Seeking Alpha suggesting that "It's Time To Exit Exxon and Chevron Stock" and I was severely criticized. Initially. A month later people were backtracking after the stock had fallen from $123 to $107. From there it's moved back up and today CVX looks equally extended at $132 (see chart below). The price has moved up rather quickly, the RSI is above 70 and falling, the MACD is beginning to roll over and looks to head down, and the ADX is starting to roll over too. None of these momentum indicators are pointing up and in reality they're all starting to point down.
Now I'm not saying that CVX is about to tank because I don't have a crystal ball and I can't see into the future any better than anyone else can. What I am saying is that when things get overvalued and the charts start to look this way, stocks tend to be dead money at best, and at worst they'll cost you.
If you're thinking of buying this stock any time soon, or if you're simply holding this stock for the dividend, this may be something to think about.