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Cablevision Systems Corporation (CVC), Hewlett-Packard Company (HPQ): S&P 500’s Top 3 Performers: Is it Time to Sell?

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The S&P 500 (INDEXSP:.INX) is now at a new all-time high. Here I want to analyze whether its a good time to sell some of the best performing S&P 500 (INDEXSP:.INX) index members. All the three companies that I am about to review operate either in the consumer discretionary space or in the information technology sector. Since the year started, cyclicals have dominated their defensive counterparts. Out of the 30 best gainers, only three stocks belonged to defensive sectors. Let’s see if you should buy, sell or hold these top performers.

S&P 500 (INDEXSP:.INX)

Huge June out-performance

Cablevision Systems Corporation (NYSE:CVC) is up by “just” 26% year-to-date (YTD) but in the last four weeks, the stock has gone up by a breathtaking 34%. The reason? It looks like the cable industry is set to consolidate and Cablevision Systems Corporation (NYSE:CVC), with its $5 billion market capitalization, looks like a great target for bigger firms such as Liberty Media Corp (NASDAQ:LMCA) or Time Warner Cable Inc (NYSE:TWC). As a matter of fact, Cablevision Systems Corporation (NYSE:CVC) still is a high operating cash flow generator with around three million stable customers in New York, New Jersey and Pennsylvania.

Of course, the Madison Square Garden’s spin-off,  higher dividends (the yield stands at 3.15%) and more share-repurchases have also helped the stock performance but the main reason behind the share’s recent out-performance has been related to takeover rumors. Selling for 2013 9.1 times EV/EBITDA, I think the price of the shares already reflect the company’s value, hence, I would sell Cablevision at the current market price. After all, the cable operator still suffers from high indebtedness (its debt is at around $10 billion) and slow growth.

Optimism imbedded into current market prices

Hewlett-Packard Company (NYSE:HPQ) is up by a stunning 82% YTD. The reason for such out-performance is better expectations about Hewlett-Packard Company (NYSE:HPQ)’s business. The market had clearly exaggerated the weaknesses of the company. Nowadays, management is indeed making progress on their focus areas, aligning the cost structure with the company’s revenue trajectory, and seeing stability and growth potential through key new areas such as the Enterprise Services business. Moderating declines in the PC market are also expected to help Hewlett-Packard Company (NYSE:HPQ)’s top and bottom lines going forward.

First quarter results were proof that the stock deserved to recover. During the last quarter, cash generation was strong and the company generated $5 billion of free cash flow (FCF) in the first half of its financial year 2013.

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