Another week is in the books, and a combination of bullish retail sales figures and fewer people filing for unemployment benefits may have lit a new fire beneath bulls' feet. For optimists, 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 have actually earned their current valuations.
Keep in mind that some companies deserve their lofty prices. Retail giant Macy's (NYSE: M ) fully deserves to be sitting at a new 52-week high, after its earnings showed a 38% jump in online orders and a 5.4% rise in same-store sales. Doubling its dividend didn't hurt the company, either. But some companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
In high spirits
Shareholders of Diageo (NYSE: DEO ) might be raising a toast following the company's revenue guidance last week, but they'd better be careful not to get too drunk on the results.
Diageo reported a 7% rise in overall sales, highlighted by growth in emerging markets Asia, Africa, and Latin America. Normally, I'd be cheering on expansion into foreign markets -- one attractive factor I'm sure the Motley Fool Income Investor team sees in recommending Diageo -- but the company's domestic and developed-world mainstays have me worried.
North American sales rose by just 3%, and sales in Europe actually fell by 3%. Considering that Boston Beer (NYSE: SAM ) has recently run into similar troubles domestically, and rival Constellation Brands (NYSE: STZ ) is priced at a much lower P/E ratio than Diageo, I'd consider putting the stock back in the cabinet for further aging, rather than buying it at a 52-week high.
Switching to decaf
I don't know what they're putting in the coffee over at Jammin Java (OTCBB: JAMN.OB), but it should be illegal. It's very uncommon for me to include an over-the-counter company in my discussions, but this week, an exception needed to be made.
Jammin Java, a retailer of gourmet coffee, is up a mind-boggling 334% in just the past month, on the heels of a promotional report from the Lautner Letter. As fellow Fool Rick Munarriz points out, Jammin Java hasn't booked a dime of revenue so far, yet has amassed a market value now approaching $400 million! Keep in mind that this company is competing against Green Mountain Coffee (Nasdaq: GMCR ) and Peet's Coffee & Tea which, unlike Jammin Java, do have tangible results you can trade off. This could be a wild ride for shareholders until Jammin Java has actual results to back up its inflated market value.
This topic is cooling off
Years ago, I finally gave up on the dream that Hot Topic (Nasdaq: HOTT ) was still a premier teen clothing retailer. Now I'm suggesting that it may be time for current shareholders to give the stock a good scrutinizing.
In the past decade, Hot Topic has had numerous near-revivals, only to be crushed by a poor mix of products and inventory troubles. Unfortunately for Hot Topic, It caters to an incredibly fickle younger crowd, whose spending habits and ruling trends can change more quickly than Hot Topic can adapt. Rivals Zumiez and Aeropostale have both struggled with changing trends as well, but they've done a far better job controlling inventory. The time for change passed Hot Topic years ago; now it's become an industry laggard.
You shouldn't be surprised to hear that earnings matter. Some companies have none, like Jammin Java. Other have promised the world and failed to deliver, like Hot Topic. Still others are faltering in areas where they are usually strong, like Diageo. In the end, it all comes down to earnings -- and by that metric, these companies simply don't hit the mark.
What's your take on these recent highfliers? Share your thoughts in the comments section below and consider adding Diageo, Jammin Java, and Hot Topic, as well as your own personalized portfolio of stocks to My Watchlist.