3 Stocks Near 52-Week Highs Worth Selling

Debt? What debt? It's earnings season and that's really all that seems to matter to investors right now. A majority of S&P 500 companies have reported impressive growth and the indexes are continuing to respond bullishly. 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. Shareholders of Yamana Gold (NYSE: AUY  ) and the SPDR Gold Trust (NYSE: GLD  ) are relishing in gold's recent ascent above $1,600 per ounce. With little relief in sight to worldwide debt issues, gold remains a viable alternative to wealth retention for both nations and individual investors.

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

Poison pill
For the second straight week, I'm going to stick it to a biotech company engaged in researching solutions for hepatitis. This week, the stock is Idenix Pharmaceuticals (Nasdaq: IDIX  ) . Idenix currently has a pipeline of five drug hopefuls to combat hepatitis B and C, but only two of the five have even made it past the discovery phase into clinical trials. Contrast this with a current market cap in excess of $600 million, and you'll see why I'm waving the caution flag.

In April, Idenix diluted shareholders with a 21 million share offering, fully utilizing its 2008 shelf registration statement with the SEC. This offering was priced at $2.80, yet investors bid up shares all the way to $7 recently, which doesn't make very much sense. Even with this extra cash and certain royalty payments from its partnership with Novartis (NYSE: NVS  ) , the company says the cash could get used up as soon as the second quarter of next year. With an FDA review likely years off, it's far too early to begin betting the boat on Idenix, and I'd urge caution going forward.

In a reality far, far away ...
Not only can you vacation like royalty when using HomeAway's (Nasdaq: AWAY  ) vacation home rental service, but you can also take a vacation from reality by closely examining the company's balance sheet.

HomeAway has an intriguing business concept that should generally net a profit, largely because more affluent individuals who are less likely to be affected by economic swings are going to use its services. But its current valuation could have you doing a double-take. Currently trading with an enterprise value to EBITDA ratio of more than 100 and an earnings multiple of more than 125, it's clear something has got to give. Following news that rival Airbnb plans to raise money through venture capital funding, HomeAway's shareholders took this as another excuse to tack even more onto the company's already exorbitant valuation. This could be a dangerous situation for longs once the six-month lock-up period ends, because if I were an insider, I'd be looking to run for the exits.

Fool me once...
Three years after emerging from bankruptcy, Calpine (NYSE: CPN  ) is back to its old tricks of trying to fool investors that it has a viable business platform.

Not much has changed over the past few years. Calpine still boasts a back-breaking $10.6 billion in debt, while future growth prospects look dreary, as evidenced by the company's five-year expected growth rate of just 7%. Currently losing money on a trailing basis, Calpine investors can only look forward to stagnant year-over-year revenue and a forward P/E of 84. It pays to be leery of companies emerging from bankruptcy, because some haven't learned their lesson and fall back into their old ways.

Foolish roundup
Sometimes, it's just easier to sit back and wait for the results to appear rather than chasing a potential disaster higher. These companies above are either unprofitable or barely profitable and investors might be wise to wait for tangible results and reasonable valuations before taking the plunge into these stocks.

What's your take? Are these stocks sells or belles? Share your thoughts in the comments section below and consider adding Idenix Pharmaceuticals, HomeAway, and Calpine to your watchlist to keep up on the latest news from each stock's 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  Motley Fool newsletter services have recommended buying shares of Novartis. 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.

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: 1526930, ~/Articles/ArticleHandler.aspx, 11/23/2014 7:15:08 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...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement