Despite Standard & Poor's surprising the market with a warning regarding U.S. debt earlier in the week, stocks have been for the most part resistant and inching higher since their initial fall. 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. Food giant Kellogg (NYSE: K ) is knocking on the door of a new 52-week high as shareholders anticipate another solid quarter and perhaps a quarterly dividend increase. But some companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
Bueller … Bueller ...
Blackboard (Nasdaq: BBBB ) short-sellers got a rude awakening earlier this week after the company said it had received an unsolicited buyout bid. With 44% of the company's shares currently held short, the stock rocketed higher, precipitated somewhat by short covering.
However, longs would probably be smart to rethink their positions here or they may find their hands getting slapped by a cyber-ruler. Blackboard has yet to disclose how much the buyout bid is for, and its online software business, which connects teachers to students, has been performing less than stellarly. Growth recently has been erratic, and I simply can't get too excited about buying into a company trading at nearly 100 times trailing earnings.
Throw in the towel
Homemakers of America and the Motley Fool Stock Advisor team, let me apologize because I don't want hundreds of you on my porch with pitchforks and fire in hand, but bulls' obsession with Bed Bath & Beyond (Nasdaq: BBBY ) has gone too far.
The retailer of home furnishings and domestic merchandise has been moving higher despite the growing weakness in housing data. What does housing data have to do with Bed Bath & Beyond? It's as simple as this: If home sales remain weak, the likelihood of consumers redecorating or renovating their homes drops. Consumers simply don't have the disposable income that they did in 2007. It'll be interesting to see how well Bed Bath & Beyond fares against last year's figures given that they were aided by the tax credit for first-time homebuyers. I feel it's time to throw in the towel on this one.
I really should be including the entire sector here, but rare-earth metals have entered a new stratosphere, specifically Molycorp (NYSE: MCP ) . Unlike Rare Element Resources (AMEX: REE ) and Avalon Rare Metals (AMEX: AVL ) , which are literally years away from producing a dime of revenue, Molycorp is at least digging up dollars.
What's interesting, as fellow Fool Travis Hoium noted, is that Molycorp's recent purchases of 90% of AS Silmet and Santoku America for $89 million and $17.5 million, respectively, have resulted in moves well beyond the market caps for these companies. Shares are absolutely priced for perfection at more than 13 times book value and 167 times trailing annual sales. Even a minor slowdown in production or a dip in rare-earth metals prices could be enough to send this stock lower. That's too much risk and not enough reward, if you ask me.
What's your take on these companies? Voice your thoughts in the comments section below and consider adding these stocks as well as your own personalized list of companies to My Watchlist. Add Blackboard, Bed Bath & Beyond, and Molycorp to My Watchlist.
Also, get a copy of our latest free report, 3 Stocks for $100 Oil.