The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has been surging higher in recent weeks, led by big-name companies such as Commonwealth Bank of Australia (ASX: CBA) and Telstra Corporation Ltd (ASX: TLS).
Despite having both delivered enormous returns over the last three years or so, the pair continue to climb higher and higher. In fact, while Telstra has set itself a new 14-year high, Commonwealth Bank has done one better having hit the $90 mark for the first time in its long history.
Due to their recent performance, investors are no doubt wondering whether there are more gains to come. So to answer that question, are they a Buy, Hold, or Sell?
Buy, Hold, or Sell?
One of the hardest parts about managing a portfolio is knowing when to sell one of your biggest winners. That's the situation many Australians find themselves in right now, with some of the nation's biggest and most popular stocks – including Commonwealth Bank and Telstra – having both experienced record-breaking runs.
Commonwealth Bank, for instance, is now one of the most expensive bank stocks in the world. It appears that many investors are holding onto the hope that it can climb another few percentage points, or that its dividend yield can continue to grow.
The problem is, the stock has become wildly overpriced and seems highly unlikely to deliver long-term market-beating returns from its current level. Although the market could push its shares up in the near-term, it seems that investors would be better off putting their money to work elsewhere. As such, investors may want to consider selling their CBA shares.
Like the bank, Telstra's shares could rally higher in the coming months – particularly if the Reserve Bank slashes interest rates further. Charlie Aitken, a well-respected stockbroker from Bell Potter, believes the telecommunications giant will increase its dividend to 32 cents per share this year (fully franked) which would almost certainly drive investor demand.
Given the telecommunication giant's sheer size however, earnings growth will become much more difficult to come by, and any significant upswing in share price is more likely to be driven by those searching for solid dividends, rather than on business metrics such as its ability to expand. While it would seem reasonable to hold onto your Telstra shares, the stock is not a standout buy at today's price.
