News of the ongoing nuclear crisis in Japan coupled with a surprise trade deficit from China have stymied the market over the past week, but hardly enough to put a dent in this drawn-out rally. 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. Shareholders of Incyte (Nasdaq: INCY ) now have even more to be bullish about than just the company's healthy pipeline after UBS upgraded the stock from neutral to buy late last week. But some companies potentially deserve a kick in the pants. Here’s a look at three companies that could be worth selling.
Pass this along to the consumer
As fuel prices continue to march higher and consumers tighten their belts in order to save money, you’d think 99 Cents Only Stores (NYSE: NDN ) would be rolling in profits. What’s potentially a cause for concern is how those quickly rising food costs will affect 99 Cents' already thin margins. The company is essentially forced to keep its products under $0.99 as its name suggests, and that could put a serious crimp in the bottom line.
In addition, the company received an all-cash buyout bid of $19.09 per share from the Schiffer-Gold family one month ago. As of today, 99 Cents is trading nearly 5% above that all-cash offer and a second bidder still hasn’t emerged. My advice would be to put this one back on the shelf before its sell-by date expires.
Give 'em the raspberry
I’m not purposely attacking food sellers or producers this week, but Unilever (NYSE: UL ) -- a conglomerate that offers everything from food to personal care products-- makes the list. The company has been ticking to new highs despite rising food and oil costs. Remember, petroleum is used as a byproduct in many personal care products, and as oil rises, the cost to supply that petroleum rises as well.
Even more disturbing, Unilever has failed to live up to expectations in the past three quarters, missing consensus estimates by an average of 14.6%. I can understand that being a foreign-based company means it doesn't get as much U.S. analyst coverage, but even Unilever's premium Ben & Jerry’s brand has no flavor that can cure that sort of disappointment.
Trial and error ... and error
It’s no secret that I’m a “show me” investor -- and all that biotechnology company Medivation (Nasdaq: MDVN ) has shown me in the past year is that it can’t get a drug out of clinical trials.
The company’s leading drug candidate, dimebon, was developed in collaboration with Pfizer (NYSE: PFE ) . It has now failed in two phase 3 trials: one for Alzheimer’s and now another for Huntington’s disease. Though the company still has one more clinical trial running for dimebon with results due out next year, the only other drug in development (and currently in phase 3 trials) is a compound aimed at treating prostate cancer. Based on its weakened pipeline, I wonder if Medivation is even remotely worth its current $706 million market cap.
Do you think these stocks have what it takes to move higher? Voice your thoughts in the comments section below and consider adding 99 Cents Only Stores, Unilever and Medivation, as well as your own personalized list of companies to My Watchlist.
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