3 Stocks Near 52-Week Highs Worth Selling

We're officially just days away from the kickoff of earnings season, and the market simply refuses to stop marching higher. For bulls, these rallies may seem like a dream come true. For skeptics like me, they're opportunities to see whether companies trading near their 52-week highs really deserve their current valuations.

Keep in mind that some companies deserve their lofty prices. AT&T (NYSE: T  ) shareholders have every reason to be excited about their stock hitting new 52-week highs on continued bullishness surrounding its purchase of T-Mobile. But some companies potentially deserve a kick in the pants. Here's a look at three companies that could be worth selling.

Corny valuation
Despite running the risk of being gang-tackled by both the Motley Fool Rule Breakers and Motley Fool Hidden Gems advisors, I think it may be time to take your profits and run on Chipotle Mexican Grill (Nasdaq: CMG  ) .

The company has been and remains an outperformer in the restaurant sector, but rising food costs are set to eat into its bottom line. As fellow Fool Rich Duprey pointed out earlier in the week, corn and wheat prices have ascended to record highs, and even Chipotle commented that costs are running higher than in 2010. True, the entire sector will be dealing with rising input costs, but investors have come to expect a significant level of outperformance from Chipotle. Any dropoff from its recent growth rate could spell disaster for Chipotle, which may cause investors to rush for the exits.

Tempting ... NOT!
Next up is Anworth Mortgage (NYSE: ANH  ) , which gets my award for most deceptive dividend hike. The mortgage REIT announced last week that it was raising its quarterly distribution from $0.22 to $0.25. Since it's already yielding more than 12%, Anworth might seem like a slam-dunk buy -- but there's more to the story.

Anworth pays out its dividends depending on how much profit it generated during the previous quarter. Before last week's release, quarterly distributions had fallen four quarters in a row. Meanwhile, the housing market continues to struggle, with recent data also showing a 22.5% freefall in housing starts in January. Compound this with KB Home's (NYSE: KBH  ) miserable report this week, and you can see why I'm bearish on just about any stock in the sector investing in mortgage-backed securities -- especially Anworth.

All that's silver does not shine
I know this might be hard to believe, but not all silver companies appear to be good investments. I think Fools should particularly steer clear of MAG Silver (AMEX: MVG  ) .

This silver mining company is still in the exploratory stages of its existence, while rival silver plays Silver Wheaton (NYSE: SLW  ) and Pan American Silver (Nasdaq: PAAS  ) are rocketing higher on tangible results. Foolish metals guru Christopher Barker seems to think that MAG Silver will do just fine, considering it offers some of the highest ore grade concentrations in the industry. But I'm a bit leery paying more than six times tangible book value for a company that hasn't brought any tangible results to the table yet. In the meantime, I'd consider sticking to names in this sector that can take advantage of spot silver's new 31-year high right now, rather than years in the future.

What's your take on the companies mentioned here; hold them or fold them? State your case in the comments section below, and consider tracking my predictions by adding Chipotle Mexican Grill, Anworth Mortgage, and MAG Silver to My Watchlist.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He would like to remind that our friends in Japan could use a helping hand. You can follow him on CAPS under the screen name TMFUltraLong. The Fool owns shares of Chipotle, which is a Motley Fool Rule Breakers pick and a Motley Fool Hidden Gems selection. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool's disclosure policy never needs to be sold short.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 08, 2011, at 4:46 PM, DividendDude wrote:

    The bearish badge fthat this article pins on ALLstocks in the mortgage backed securities sector is proof that advice is sometimes 'only worth what you pay for it'. In this case, the advice is worth ZERO.

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