3 Stocks Near 52-Week Highs Worth Selling

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All the king's horses and all the king's men may not be able to put Europe back together again -- but ask the market if it cares. For optimists, these rallies may seem like a dream come true. For skeptics like me, they're opportunities to see whether companies trading near 52-week highs have earned their current valuations.

Keep in mind that some companies do deserve their current valuations. Retail value store Dollar General (NYSE: DG  ) is one such company. Dollar General surpassed earnings estimates this week with a $0.02 beat and remains upbeat about business despite an uncertain economic environment.

Still, 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
Someone needs to put some weights on the valuation of Nicor (NYSE: GAS  ) before the supplier of natural gas literally floats away. As a utility, Nicor does offer investors some semblance of stability. But the company often finds itself at the mercy of natural gas prices, the fickleness of consumer needs, and oddly, the demand for its other business subsidiary, Tropical Shipping.

In its latest quarterly filing, Nicor missed expectations by 60% as demand in its shipping business fell. What's more concerning is the lack of growth in Nicor's core natural gas business. Since 2006, Nicor's gross margin has fallen precipitously despite the company being regularly profitable. Without any real growth on the horizon and the company trading at a rich 21 times forward earnings, I'd suggest passing on Nicor here.

Try scaling this mountain
Continuing to harp on overvalued companies, I'm going to move onto Aspen Technology (Nasdaq: AZPN  ) , a provider of software and services to the processing industry.

Aspen, despite its rapid revenue growth, has lost money in nine consecutive quarters yet bears a valuation reminiscent of a dot-com-era company. At a staggering 77 times forward earnings and 12 times book value, Aspen's valuation is considerably frothier than its closest peers Siemens (NYSE: SI  ) and SAP (NYSE: SAP  ) . Perhaps the one bright spot of Aspen's recent quarter was the introduction of a $100 million share repurchase program, which could help inflate its ailing bottom-line results. But the way I look at it is that until Aspen can consistently deliver a profit, it's not worth your hard-earned money.

Madison's flagrant foul
Betting against Madison Square Garden (Nasdaq: MSG  ) to me seems like a no-brainer play. I mean, when was the last time the New York Knicks were relevant anyway?

OK, all jabs aside, shareholders seem to have taken the recent end to the NBA lockout with a little too much enthusiasm, sending Madison Square Garden's stock to the brink of a new 52-week high despite the fact that the season will only be 66 games long rather than the normal 82, resulting in a big hit to the season's revenue. The end of the lockout is cause for celebration, but I find little room for future price appreciation with the stock valued at 22 times forward earnings -- a level that is higher than all but two of its peers and the industry average P/E of 14 . Buying into Madison Square Garden at these levels is likely to end in a brick shot.

Foolish roundup
This week it's all about maintaining a reasonable valuation relative to a sector. Nicor's lack of growth, Aspen's absence of a profit, and Madison's reduction in revenue are enough for me to recommend giving them the old heave-ho! Perhaps you'll follow my lead as I give these three the thumbs-down in my CAPS account; or maybe you feel otherwise?

What's your take on these stocks? Are they sells or belles? Share your thoughts in the comments section below and consider adding Nicor, Aspen Technology, and Madison Square Garden to your free and personalized watchlist to keep up on the latest news with each company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He seriously can't remember the last time the New York Knicks were relevant. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Madison Square Garden. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 (2) | Recommend This Article (0)

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 December 07, 2011, at 1:26 PM, sklarb wrote:

    Pass on Nicor, huh? Illinois Commerce Commission just approved their merger with AGL resources today for cash and stock and a higher dividend from AGL. Glad I owned it- I bought some time ago because they got the ICC to approve a monthly $14 delivery charge to residential customers so even in the summertime when you only use natural gas for cooking and your water heater you still started getting charged the $14. Might be too late to own it now, I don't know but I'm glad I bought it when I did. Do you know about the merger? You didn't mention it.

  • Report this Comment On December 09, 2011, at 4:03 PM, azpnwizard wrote:

    Obviously, the genius who wrote this article has no clue. About two years ago AZPN went from an upfront revenue recognition, where all the potential revenue is recognized in the quarter the contract is signed, to a cash recognition model, where revenue is recognized as the money comes in. That's why they've shown negative earnings. Maybe, this ANALyst should take a look at cash flow.

    Ask yourself this, if AZPN were actually losing money, why would they initiate a buyback program? Wouldn't they be hoarding cash? They bought back about $20MM of stock in their last fiscal year.

    It would be nice if this guy actually did some research on the company rather than just look at the PE ratio and earnings which are meaningless at this point for a company like AZPN. That why the stock is under accumulation by the smart money. If the company were under the old revenue recognition model the pps would be in the 40's and this clown would be telling you the stock is cheap.

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