The S&P 500 is on fire. The index is on track for its ninth consecutive month of gains. And chances are any stock you’ve owned in that time has risen at a respectable pace as well.

Yet one thought is gnawing at many investors: Is it time to think about locking in profits? 

After all, we’re already past the point where stocks saw substantial pullbacks in recent years. And this year‘s surge is even more impressive than the surges we saw early in 2010, 2011 and 2012.

S&P 500: A Surge, A Swoon And A Surge Again

Yet even if one chooses to start selling stocks, it’s not always clear which candidates in your portfolio are ripe for jettisoning. Here are five guideposts I look for to spot potential sell candidates.

1. Portfolio Concentration

If you aim to construct a portfolio with an equal weighting given to all stocks, you’ll notice that the weighting changes over time, thanks to varying levels of appreciation.  That hot stock that once accounted for 5% to 7% of your portfolio might have grown to 15% or more today. That’s too much. The problem with these heavily weighted stocks is that they can wipe put your gains more quickly in a market pullback.  As a handy exercise, calculate the size of each position in your portfolio. Any holding that is now worth more than 10% of your total portfolio is worth re-examining in the context of these guideposts.

2. Balance Sheet Trends

While most investors fixate on income statement trends, most notably sales and profit projections, they should really look to the balance sheet for signs of concern. For retailers, you want to see if inventories are rising at a fast pace — especially as a percentage of sales. Let’s use Kohl’s (NYSE: KSS) as an example.  In the second quarter of the company’s fiscal year 2013 (which ended July 30, 2012) inventories as a percentage of sales started to spike higher. (It’s wise to compare each quarter with the comparable quarter from a year earlier as inventories rise and fall due to seasonal factors as well.) Investors would have been wise to sell shares at that point. By the next quarter, the inventory bulge grew to more alarming levels, and shares fell sharply. Shares are rebounding because management is bringing the inventory issue back under control. Kohl’s Bloated Inventories For other firms, keep a close eye on deferred revenue. If this figure dips from one quarter to the next, it’s a sign that orders are slowing, and the company is eating into backlog to meet sales forecasts. That can only be sustained for a few quarters before a company — and the analysts that follow them — focus on downward forecast revisions.

3. Watch The Peers

Many investors mistakenly focus on the management commentary of the stock they own when they should also be monitoring what rivals say. When I look for potential sales candidates, I research the company’s peers to spot warnings signs, such as falling profit forecasts or a recent steady drop in the stock. More often than not, troubling operating trends that befall one company eventually extend to the whole industry.

4. Look At The Multiples

In a similar vein, I grow concerned when a stock becomes more richly valued than its peers. Any investors that are new to that industry are likely to pour money into the cheaper rivals, which will probably cap further appreciation for your investment.  Don’t just look at profit multiples. Other metrics such as the price-to-sales and price-to-book ratios and EBITDA (earnings before taxes, interest, depreciation and amortization) as a multiple of enterprise value should all be part of your analysis.

5. Track The Insiders

It’s a long-standing investment maxim that insider buying is a lot more meaningful than insider selling. After all, insiders have plenty of good reasons to sell a stock that may have nothing to do with a company’s performance. Yet when a cluster of insiders seek to cash out a huge chunk of their holdings at the same time, it’s a clear red flag.  For example, we recently saw hundreds of millions of dollars in stock sold by insiders at KAR Auction Services (NYSE: KAR) and U.S. Silica Holdings (NYSE: SLCA) in tandem with a secondary stock offering. If these insiders no longer want to own company stock, why should you?

Risks to Consider: As more of an investment factor than risk itself, investors may need to time their stock sales in order to avoid an especially large tax bite in any given year. It may be smart to pair the sale of appreciated stock with that of an underperforming stock. 

Action to Take –> Make no mistake: Some stocks that you sell will keep rising after the fact. That can’t be helped. As long as you reinvest proceeds from stock sales into other (presumably lower-priced) stocks, then you are still fully exposed to further market upside. Then again, sitting on cash is often a wise move, helping you to preserve hard-fought gains after a four-year market surge. 

P.S. — StreetAuthority’s Amy Calistri has one objective for readers of Stock of the Month: Provide one quality stock pick each month, with in-depth analysis in plain English that investors can understand. She just released a special presentation, “How to Beat the Stock Market… In Just 12 Minutes per Month,” that tells you more about her strategy. Go here to learn more.