The Dow may be on track to log its fourth straight down week, but many companies have hardly budged from their 52-week highs. 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. Take GameStop (NYSE: GME ) , which has enjoyed a steady march higher in the past two months. Between its share buybacks and surprising investors with news that gaming's demise has been highly overblown, the company has gained 40% since the beginning of March, much to the chagrin of short-sellers. But some companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
Sell-phone
Sprint Nextel (NYSE: S ) has quietly vaulted to a new 52-week high despite the likelihood that it will drop to a distant No. 3 behind AT&T (NYSE: T ) and Verizon (NYSE: VZ ) once AT&T's merger with T-Mobile is approved.
Sprint Nextel has been unimpressive for some time now, hemorrhaging subscribers and going from once-healthy past quarterly profits into sizable current losses. Even the company's investment portfolio has been sacking its performance. Clearwire (Nasdaq: CLWR ) , into which Sprint has sunk a significant amount of funds, continues to struggle to attract new customers while controlling costs. Frankly, I don't see an end to Sprint's woes nor an easy way out of its Clearwire investment. I'd advise steering clear of this mess until Sprint's bottom-line figures improve dramatically.
Doughnut hole
We're talkin' about doughnuts, man … doughnuts! Traders are too busy being hyped up on Krispy Kreme's (NYSE: KKD ) sugar rush to notice that despite the company's best quarterly profit in seven years, it listed several red flags in its quarterly report.
Despite the company's best effort to raise prices in light of rapidly rising input costs, customers are spending less per check. Also worrisome were comments the CEO made in the company's March annual filing that the typical Krispy Kreme customer visits the chain only once a month. Being unable to successfully pass along price increases and get recurring customers back into the store is an ongoing concern I have. Considering there are cheaper alternatives out there to Krispy Kreme, I'd avoid this jelly doughnut and consider something healthier for your investment portfolio.
Say what, Graham Smith?
salesforce.com (NYSE: CRM ) needs no introduction, as it is the poster child for cloud computing. Shareholders have enjoyed a greater than 75% jump in its share price over the past year, but now might be the time to part ways with this in-the-clouds valuation.
For those of you who actually took the time to listen to the company's conference call, did anyone happen to catch the red flags CFO Graham Smith was throwing investors? To summarize, Smith attributed a good portion of the company's first-quarter profits to beneficial currency exchange rates and forecast flat-to-down deferred revenue in the second quarter. Trading at 80 times forward earnings, deferred revenue growth is what salesforce.com is all about, so this could be the 800-pound gorilla short-sellers have been looking for. As for me, I'd suggest getting your head out of the clouds and giving this company a closer look.
Can you hear me now?
The lesson this week is to pay attention to what management is telling you. Often as traders we overlook the potatoes and go straight to the meat (the actual earnings figures). Remember that as investors we need to take in all aspects of our meal before we take a bite -- and in this case, the above companies aren't putting much on the plate.
So are these stocks sells or belles? Share your ideas in the comments section below and consider tracking Sprint Nextel, Krispy Kreme, and salesforce.com, as well as your own personalized list of stocks with My Watchlist.
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