3 Stocks Near 52-Week Highs Worth Selling

Following an eight-day, nearly 7% rally in the S&P 500, along with the Nasdaq sitting at a 10-year closing high, it's safe to say that the market rally is back in full force -- or at least until this morning's terrible jobs number. 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. Chico's (NYSE: CHS  ) has been benefitting from recent struggles at rival Talbots (NYSE: TLB  ) , catapulting the stock to a new 52-week high. This follows a preliminary quarterly report from Chico's last month that it expects double-digit revenue growth and low single-digit same-store sales growth.

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

Full of hot air
Not to steal Alka-Seltzer's catch phrase, but plop, plop, fizz, fizz, oh what a relief it is for SodaStream (Nasdaq: SODA  ) shareholders since the company began trading on the Nasdaq in November. The question that most skeptics have, including myself, is whether its 200% move higher since its debut is warranted. As of right now, I'd say no.

This isn't to say that SodaStream won't become incredibly popular and prove me wrong, because that has happened plenty of times before. But justifying a forward P/E of 55 in lieu of traditional carbonated beverages providers PepsiCo (NYSE: PEP  ) , Coca-Cola, and Dr Pepper Snapple Group (NYSE: DPS  ) -- all of which trade at forward P/Es ranging from 14 to 16 and offer stable dividends to shareholders -- seems like investing suicide. It would be foolish to assume these larger companies will grow quicker than SodaStream, but it would be equally foolish to assume that SodaStream can grow at a lightning pace forever.

Investing for the distant future
Houston American Energy
(AMEX: HUSA  ) is an anomaly in the oil and gas sector – rising without regard to good or bad news.

The company in late 2010 sold off all of its oil well interests in Colombia, netting the company much needed cash but also removing what was 99.2% of all oil production. Couple this with the fact that the average price received for natural gas fell 20% during the most recent quarter and you'll understand even more why revenue tumbled 97%.

Houston American will undoubtedly seek out new wells, but in the meantime investors are left to go off of the information we have on paper. Namely, a company that trades at 40 times trailing 12-month sales, with declining working capital, declining cash on hand, and free-falling revenue and earnings. Nothing to see here folks, move along...

No vacancy
While certain aspects of luxury have thrived even amid the recovery, hotels have not been nearly as fortunate.

Strategic Hotels & Resorts (NYSE: BEE  ) , a REIT which owns properties throughout the U.S. and is in the process of selling its properties in Europe, hasn't logged a full-year profit since 2007. The company noted in its first-quarter report that revenue per available room, or revPAR, has been increasing, which is a bullish sign for optimists. Still, these results have yet to translate into a profit for Strategic, which is also mired under a mountain of debt. While debt levels have fallen over the past year, concerns still remain with having $1.1 billion in debt on the books in an environment where commercial building and housing prices remain weak.

Also, as a REIT, the primary draw for investors is usually the dividend. In Strategic's case, the company hasn't paid a regular dividend since 2008, making it even easier to pass over this company until it shows investors tangible results.

Foolish roundup
Rising revPARs, soaring revenue, and promises to lease more wells are fine and dandy, but they don't mean much if they don't translate into a bottom-line profit. Sometimes it's best to wait on the sidelines for tangible evidence that a company is moving in the right direction, rather than risk getting caught in the headwinds if it fails to live up to expectations.

What's your take on these three companies? Are they sells or belles? Share your thoughts in the comments section below and consider adding SodaStream, Houston American Energy, and Strategic Hotels & Resorts to your watchlist to keep up on the latest news from each stocks' respective sector.

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 PepsiCo. Motley Fool newsletter services have recommended buying shares of Coca-Cola, SodaStream, and PepsiCo, as well as creating a diagonal call position on PepsiCo. 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 (5) | Recommend This Article (6)

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.

  • Report this Comment On July 08, 2011, at 2:22 PM, cburns14 wrote:

    It is really comical that this site continues to be allowed to operate. There is NOT ONE shred of truth to what has been written about HUSA.

    Not only has there been plenty of good news the past few weeks to drive the stock up, such as oil production operations starting in a fertile, oil-rich area, but HUSA hasn't sold anything other than one small minor piece of land.

    They still own ALL of the oil-rich pieces of land that made this company one to watch, and an incredible growth story.

    Wonder how short you must be on HUSA - hopefully you covered because when results come in the next 30 days, this stock will see 30+ per share.

  • Report this Comment On July 08, 2011, at 2:33 PM, David369 wrote:

    I might disagree with you at little on SODA. Yeah, I agree they are shooting up faster than seems reasonable or really desirable but when I look at GMCR it has gone up 167% in the last 6 months while SODA has only gone up 146% (did I say only?). They are apple and oranges, but they are both fruit. Both could be a passing fad, both allow for individual choices in drinks and both sell the razor & blade while making money off the blade. You might say GMCR has been around longer but I know SODA has been around a couple of years selling over in Europe so they have an advantage that GMCR did not have to begin with in that they already had an established business (doing pretty good it seems). Comparing SODA to Coke/Pepsi is like comparing GMCR to Maxwell house. Yeah, there is a relationship involved but in this case PE reflects potential growth for SODA and historical growth for Coke/Pepsi. Really, I never look at PE, it just confuses me since it seems to mean one thing at one time and another at another time. A crystal ball would probably give me better information and I wouldn't be disappointed in the lack of useful info. In this case I have looked into my crystal ball and uh...see nothing as usual. However, seeing how SODA has done well in Europe (they do have Coke & Pepsi over there don't they?) I figure if they do half as well here then that's probably a big chunk of change. I wonder if they have plans for Asia? Do they make a carbonated green tea? See that's the problem with PE, no imagination factored in.

  • Report this Comment On July 08, 2011, at 4:51 PM, cowbore333 wrote:

    I agree w/David369. He took the Apples and Organges right outta my mouth. Sean is poopooing this stock just as they are about to enter into Costco and Wallmart. Just doesn't make sense to question growth potential just now.

  • Report this Comment On July 08, 2011, at 5:44 PM, martinitony wrote:

    There is a natural cycle that high growth companies go through. In the beginning accelerating velocity of sales. Usually this is accompanied by better gross margins and higher profits due to economies of scale. SODA, for whatever reason, is just in the beginning part of the beginning. The product is proven in Europe and just really getting started here. There's China and South America. I don't think profits that justify a capitalization of $10 billion in the next few years are unrealistic. The current cap at $75 is about $1.5 billion.

  • Report this Comment On August 17, 2011, at 12:39 AM, TMFUltraLong wrote:

    SodaStream plummets again - even a blind squirrel finds a nut once in a while I guess.

    TMFUltraLong

Add your comment.

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: 1516939, ~/Articles/ArticleHandler.aspx, 10/25/2014 5:02:11 AM

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...


Advertisement