Although we all need a game plan each and every day we enter the market, it is especially important during the fall when volatility spikes.

And despite the market sitting near a 52-week low, there are still tons of companies that are extremely overvalued and need to be avoided.

Take, for example, Titan Machines (TITN). Titan is an agriculture equipment retail seller that trades with a forward P/E of 23, EV/EBITDA of 18 and price/book of 3.8, which certainly stretches the scale in terms of valuation for this company. We all know that anything related to the agriculture/commodity space has been a complete mess these last two or three weeks, and with earnings ahead, we expect Titan to be no different.

Additionally, Deere (DE), a much larger and better-managed company than Titan, had mixed earnings and sales last quarter. Input costs acted as a huge negative headwind for Deere, and we expect the same in Titan's case. The company recently issued additional shares into the capital markets at around $20 per share. Given the weak nature of the sector as a whole, poor performance of its larger competitor and overvaluation, we would avoid Titan this week.

Toll Brothers (TOL) is another stock to avoid. Who knows when housing prices will bottom? But one thing is for certain: The massive insider selling by Bob Toll, Bruce Toll and Bob Blank, all senior level management at Toll Brothers, certainly leaves a nasty taste in investors' mouths. Bruce sold about 10% of his stake, or about 648,739 shares, for an average price of $26.28. Since Aug. 15, Bob Toll sold 1.5 million shares, and Bob Blank sold 10,000 shares. It looks as if management is taking advantage of the stock's recent rally. Investors should clearly avoid this stock for the time being. Why back the company when management is selling?

We would also avoid Sears Holdings (SHLD) this week. The stock has had a very impressive rally from its July lows of $67 per share. Fundamentally, the company is still broken and doesn't seem to have a clear business plan going forward.

Another name to avoid this week is Colfax (CFX), a maker of various fluid management systems primarily in the European Union. Colfax trades with a forward P/E of 13.6, EV/EBITDA of 9.8 and price/book of 3.6. This stock is definitely stretching the limits in terms of valuation, especially given the fact that the company reported single-digit revenue guidance last quarter. Despite being overvalued, Colfax is also facing substantial headwinds in the near future. Since 49% of its business is derived from the European Union, the slowing economics in Germany, Italy, Spain and the UK will act to dampen future revenue. Additionally, more than 30% of European high-risk, high-yield bonds are trading at distressed levels, the most in five years, meaning defaults could rise. Colfax's fluid management business is leveraged to the price of oil and natural gas, and given the fact that these commodities are down 40% in the past two months, it is safe to assume sales should be down as well. Avoid this stock at all costs.

Of course, we also would steer clear of any financials outside of Goldman Sachs (GS), Morgan Stanley (MS) and JPMorgan (JPM). Otherwise, it's purely gambling on the Lehman (LEH) bailout by Bank of America (BAC) or good news from a Merrill Lynch (MER) or Citigroup (C).

Posted on Sept. 14, 2008