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3 High Risk Hot Stocks To Watch

Tickers in this article: GMCR RAX VRTX

Chris Lau, Kapitall: It is generally thought that when a stock is hot and continues to rise, its stretched valuation makes it inherently riskier to hold. When a stock filter like this one is run, the companies listed on results have an average forward P/E of a lofty 25, and a 1-year average return of 88%. Together, the companies represent a diversification of 68%. From the companies listed in the table below, three of the companies (in bold) could hold more upside due to their progressive price move over the last few months.  (More from Kapitall: Insiders Are Buying These 3 Undervalued U.S. Stocks)

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Analysis

In the technology sector, Rackspace Hosting (RAX) is notably on a downtrend. The company is down 16% over a one year period after peaking at $80 at the beginning of 2013. IBM (IBM) became a bigger rival after the company acquired SoftLayer, a web hosting and cloud infrastructure firm.

Rackspace shares are down because the company reported weak first quarter results last month. The company earned $0.20 per share on revenue of $362.2 million. Cash flow was -$1 million. Analysts quickly downgraded their ratings on the company. As cloud offerings become more important for Microsoft and Google, competitive pressures will mount for Rackspace.

In the coffee market, Green Mountain Coffee Roasters (GMCR) is up 89.6% in 2013. The consumer goods company sealed a 5-year deal with Starbucks (SBUX) to add more products made by Green Mountain Coffee. This will triple the number of Starbucks products and raise the product exposure of the Keurig brand at Starbucks locations

Green Mountain is in a sweet spot right now with strong revenue growth and higher profits. The company expects to earn $3.05 – $3.15 per share this year on a sales growth of 11% to 14%.