3 Stocks Near 52-Week Highs Worth Selling

Concerns about U.S. debt and a Greece bailout remain at the forefront of investors' minds, but it wasn't enough to derail dozens of companies from hitting new 52-week 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. Secondary education company and Rising Star pick Bridgepoint Education (NYSE: BPI  ) is one such company. With enrollment growth that puts rivals Apollo Group (Nasdaq: APOL  ) and Corinthian Colleges (Nasdaq: COCO  ) to shame, and earnings results that continue to crush Wall Street's estimates, it's no surprise to see the stock trading at a new 52-week high.

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

Utopian economics
Miller Energy Resources
(NYSE: MILL  ) continues to work its slight-of-hand tricks on paper, but it's not fooling me!

This explorer, producer, and driller of oil and natural gas purchased the assets of Pacific Energy Alaska Operating LLC in bankruptcy court for $2.25 million in 2009, then immediately turned around and claimed a $277 million gain on its purchase, adjusting for what it deemed to be underpriced assets. Since the purchase and subsequent one-time gain Miller's stock has nearly tripled -- but is this warranted? I'd say no.

The company hasn't produced anything near a full-year operating profit yet based on its drilling and exploration activities. Revenue figures show huge growth, but considering that the company was essentially starting from zero, those results need to be taken with a grain of salt. Valued at more than 12.5 times sales and still potentially years from turning an operating profit, Miller's going to need to entice me with tangible results rather than rabbit-out-of-the-hat tricks to get me on board.

Going flat
Everybody is buzzing about fizzy drinks these days. Three weeks ago, Hansen Natural was my target, last week it was SodaStream, and this week it's National Beverage (Nasdaq: FIZZ  ) .

On paper, things look like they're heading in the right direction. National Beverage does have a healthy balance sheet with no debt. Profitable, and trading at 16 times forward earnings, what could possibly be wrong? I suggest you take a closer look at its growth projections.

That's not a misprint, folks: expected revenue growth of 1%-2% per year over the next two years. There's only so much frosting you can put on the cake before the lack of real substance becomes apparent. Over the past year, revenue is up 1.1% thanks in large part to a 1.2% increase in unit prices. This recent trend of price increases outpacing sales growth is a disturbing trend and speaks volumes to the lack of organic growth at National Beverage. If shareholders aren't careful, their investment could wind up flat.

Wait before you bet the farm
While it's difficult to value a pharmaceutical upstart based solely on its results, sometimes we can't ignore them.

Infinity Pharmaceuticals (Nasdaq: INFI  ) has moved steadily higher to a valuation of $240 million, yet none of its five drug candidates have made it past phase 2 trials. Data has so far been encouraging, but despite earning revenue derived from its alliance with Purdue and Mundipharma, Infinity has no marketable products.

This isn't the first time we've seen a biotech company take off with all of its drugs still early in clinical trials -- and it won't be the last. Investors need to focus on not letting their emotions get the best of them and trade based on the facts. Right now, the facts show a company that's scheduled to run out of cash in 2014 with a steady stream of losses. Investors would be smart to wait for late-stage phase 3 trials to consider an investment here.

Foolish roundup
Jumping the gun before the results are in is one of the most common investing mistakes. Whether it's a biotech, oil company, or beverage maker, waiting for signs of tangible revenue growth and profits are the keys to a successful investing plan.

What's your take on these companies? Share your thoughts in the comments section below and consider adding Miller Energy Resources, National Beverage and Infinity Pharmaceuticals to your watchlist to keep up on 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 Bridgepoint Education. Motley Fool newsletter services have recommended buying shares of Hansen Natural and SodaStream, as well as creating a call spread position in Bridgepoint Education. 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 (7) | 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.

  • Report this Comment On July 15, 2011, at 4:05 PM, lovesstocks2 wrote:

    Miller has already fooled you. The company's accounting has already been approved by the company's CPA's and this is an area of accounting that is usually checked very thoroughly. Accounting involving bankruptcies and writeups is tricky and definitely not common, but this has a lot of tangible assets to back it up.

    When you strart up a $300 million company that was completely shut down, you need to expect startup costs and this company is using the successful efforts method of accounting, the most conservative method for oil and gas companies. You need to watch the production/profits of the parts of the company now operating and separate that from the investments being made at the same time to get other parts of this company going. The company already stated that it could cost up to $3 million a well to get things going again, clearly a good move at current oil prices and far less risky than drilling new wells, but expect much of that $3 million to be expensed. You really don't want it on the balance sheet. Any assets on the books are subject to periodic reviews for writedowns by the accountants for any one of a number of reasons.

    The US geological survey just released a new revision for Cook Inlet showing up to 20 times the amount of gas that was believed to be there before and more than 3 times the amount of oil Apache just purchased a slew of leases all around this companies leases and if you check the activity up there has increased significantly. The real question is whether these are high cost or low cost reserves because if they are low cost, then the company will survive the next inevitable downturn.

  • Report this Comment On July 16, 2011, at 8:23 AM, steve7150 wrote:

    Also Miller gets $8 per MCF for gas as it's a closed loop system in Alaska. Now that they got a $100 mill in financing , they can begin to develop the 600K acres in Alaska. That's a huge amount of acreage and if it's productive , and with MILL having a small float of 50 mill shares this co can be a tremoundous investment.

  • Report this Comment On July 17, 2011, at 5:00 PM, lovesstocks2 wrote:

    When you think fraud in the oil and gas business the full cost method of accounting provides far more room to play than the successful efforts. I personally think you just looked at the writeup and then rejected the company and never checked to see what is going on. The top line is rising, but it will rise more slowly now, probably until they get their new rig because they need that rig to restart the next four wells in the program, but when that rig gets there, they could double their production again. They have done exactly what they said they would do and the top line and costs reflect what is going on, so where is the beef?? Really your thesis appears to hinge on one thing, the write-up but those write ups are allowed. Besides, as events have unfolded, if anything the company is proving that those assets really are there and so far what is operating is worth something. They even have a power plant that can sell electricity to the electric company if they want, in the meantime it powers their work on the wells in the area.

  • Report this Comment On July 17, 2011, at 5:06 PM, lovesstocks2 wrote:

    If you are wondering why they only bid $3 million for this you have to remember that they are planning to spend $100 million (borrowed) to get things going again. If they do it correctly, the assets should be worth the equity plus the debt, but you need a large margin for error because this is a big project and two people have already failed at this project. So what are you really willing to pay in total including the borrowings for this opportunity?? They also have to staff up for this (and they are). There is plenty of risk here, just not where you are looking

  • Report this Comment On August 30, 2011, at 12:58 AM, lovesstocks2 wrote:

    KPMG signed off on the valuation of the Alaskan properties and there is an independant appraisal of the properties by someone who has been doing this for more than 30 years with a great (and major reputation).

    The short attack is now being investigated by the SEC. While this is not over yet, things are looking up, and this company may yet make it.

    Lets see what comes out of the conference call tomorrow.

  • Report this Comment On August 31, 2011, at 2:55 AM, rodessa wrote:

    For now, no proved reserves at all.Why has it been necessary for Miller to use another company to increase the value of the assets from 2.25 to 277 millions !!!!.Not clear at all ! KPMG, one of the big four, didn't accepted the valuation of the assets, and the S.E.C is investigating not for short attack, but for fraud from Miller.A report NI 43 - 101 is needed, and only qualified experts can do that, an experience and a major reputation are not enough.

  • Report this Comment On July 18, 2013, at 1:21 AM, lovesstocks2 wrote:

    The accounting has been accepted by the auditor, because the price that you quoted was only the cash that changed hands and not the purchase price. The auditors correctly added in the assumed liabilities and there were quite a few of those at the time of the purchase.

    Those assets are now being used. Some are rented to apache and other oil companies as needed. Miller has also started a disposal business.

    Most importantly, it now has three rigs running and the results are starting to pour in.

    Because you never took the time to research the purchase you missed a good solid speculation.

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