Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



3 Stocks Near 52-Week Highs Worth Selling

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Federal Reserve Chairman Ben Bernanke doesn't exactly have a way of exciting the markets, but that didn't seem to matter to the dozens of companies that hit new highs this week. 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 valuations. Shares of dollar stores are thriving as they take advantage of consumers' penny-pinching ways following the lengthy recession. Dollar Tree (Nasdaq: DLTR  ) and Dollar General (NYSE: DG  ) are two such names that are within grasp of a new 52-week high -- and deservedly so.

Still, some companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.

The roof, the roof is on fire
The housing market is a mess. Home prices have once again begun spiraling downward, and a glut of foreclosed homes sits on the market unsold, leaving little room for new housing. Despite this, shares of Beacon Roofing Supply (Nasdaq: BECN  ) clawed their way to a new 52-week high. But now might be the time for shareholders to step away from this hot play.

Beacon's role in Canada's more stable housing market undoubtedly has played a role in boosting its stock, but U.S. housing market forecasts remain bleak. Whether the housing market double dips, I think it may be a bit premature to make a bullish call on suppliers to the homebuilding sector. Beacon has resoundingly missed consensus EPS estimates in three of the past four quarters. In its most recent quarterly report, the company noted a decrease in residential sales coupled with a jump in operating costs. These are potential red flags that current shareholders should be wary of.

Beware the sugar crash
Investors in Hansen Natural (Nasdaq: HANS  ) are as wired as the drink maker's customers. The makers of the Monster brand of energy drinks are surging to all-time highs this week, continuing a precipitous uptrend that began last July. But what are investors really swallowing?

It's not that Hansen Natural isn't delivering impressive growth, because five-year projections call for annual growth of 14.6%. The real worry is from a valuation perspective relative to its peers. There's no question that Hansen is going to grow more rapidly than PepsiCo (NYSE: PEP  ) and Coca-Cola (NYSE: KO  ) , but with Hansen trading at 7.8 times its book value and 23 times forward earnings, it may be time to switch to a more mainstream name.

Also consider that Coke and Pepsi pay out dividend yields close to 3%, while Hansen pays no dividend to shareholders, and you can see why this drink may go sour with shareholders sooner rather than later.

Don't yield to high yields
Not to completely pick on the housing sector again, but what are shareholders thinking by pumping Capstead Mortgage (NYSE: CMO  ) to a 52-week high? Capstead operates as a real estate investment trust, so it does return the majority of its earnings to shareholders in the form of a dividend, but have investors really looked at the company's growth projections recently? I have, and it's not pretty.

After enjoying big spreads in interest rates, estimates for future growth for mortgage REITs are coming down. In fact, Capstead has a negative projected growth rate for the next five years. That means you should expect that attractive 13% yield to fall in the coming years. You have to pick and choose wisely with REITs, and this may be one to pass on.

Foolish roundup
This week was not just about picking on the housing sector, but was aimed at examining just how fragile consumer spending habits are. Consumers are still very gun-shy about spending for big and small purchases, so investors need to adjust their trading strategies accordingly.

What's your take on these companies? Are they sells or belles? Share your genius with the community in the comments section below and consider adding Beacon Roofing Supply, Hansen Natural, and Capstead Mortgage to your watchlist to keep up on the latest news in these stocks' respective sectors.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong. The Motley Fool owns shares of Coca-Cola and Pepsi. Motley Fool newsletter services have recommended buying shares of Coca-Cola, Hansen Natural, and Pepsi, as well as creating a diagonal call position in Pepsi. 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 has a disclosure policy that never needs to be sold short.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1511691, ~/Articles/ArticleHandler.aspx, 10/21/2016 2:53:15 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,152.08 -10.27 -0.06%
S&P 500 2,141.21 -0.13 -0.01%
NASD 5,254.12 12.29 0.23%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 2:37 PM
BECN $42.35 Up +0.51 +1.22%
Beacon Roofing Sup… CAPS Rating: No stars
CMO $9.29 Up +0.05 +0.49%
Capstead Mortgage CAPS Rating: *****
MNST $146.97 Up +0.36 +0.25%
Monster Beverage CAPS Rating: ***
DG $68.18 Up +0.20 +0.29%
Dollar General CAPS Rating: ***
DLTR $75.84 Down -0.04 -0.05%
Dollar Tree Stores CAPS Rating: ***
KO $42.09 Up +0.16 +0.38%
Coca-Cola CAPS Rating: ****
PEP $105.58 Down -0.29 -0.27%
PepsiCo CAPS Rating: ****