3 Stocks Near 52-Week Highs Worth Selling

Despite large market moves becoming the norm, that hasn't stopped more than 450 companies from nearing new 52-week highs. 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 actually earned their current valuations.

Keep in mind that some companies do deserve their current valuations. Alaska Air (NYSE: ALK  ) , for instance, has been flying higher despite American Airlines parent AMR announcing it was filing for bankruptcy protection. As a regional airline, Alaska has been able to control its costs better, which has allowed it to undercut the prices charged by national carriers.

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

This stock's all fluff
What makes for a good long-term investment is a product with broad appeal and staying power. Somehow, I have a hard time throwing teddy bears into that category. The problem with the teddy bear is that it's a very cyclical product and I have little clue exactly how you would define "innovation" when it comes to making bears? This helps to sum up to this weeks' first kick to the curb: Build-A-Bear Workshop (NYSE: BBW  ) .

For a bear-making operation, Build-A-Bear is trading at a hefty premium. The company, which has reported significantly wider-than-expected losses in two of its past three quarters, is likely to report flat revenue growth in 2011 and just 4% growth in 2012, according to analyst estimates. Yet Build-A-Bear is valued at 25 times forward earnings and more than 360 times trailing-12-month figures. As I see it, this stock is all fluff and simply doesn't deserve your hard-earned money.

Clinical trial blinders
I'll be the first to admit that valuing a drug which hasn't even hit the market yet is a crapshoot at best. Sometimes I look like a genius, and other times, as Pharmasset (Nasdaq: VRUS  ) and its $11 billion buyout proved, I look like a dolt. And still I press on! Today, I'm taking on Halozyme Therapeutics (Nasdaq: HALO  ) , which has had a series of good news lately. Insiders are snapping up shares and the company reported positive phase 3 results for Herceptin with partner Roche and positive phase 2 trial results for Cinryze with partner ViroPharma (Nasdaq: VPHM  ) .

So why bet against Halozyme, you might wonder? I refer to it as the Human Genome Sciences (Nasdaq: HGSI  ) rule. Human Genome had its lupus drug approved by the FDA, but investors soon realized that approval does not lead necessarily to profitability or acceptance of the drug. Even with approval of Herceptin, it's very unlikely Halozyme will be turning a profit and it's still a year away from any phase 3 results on its partnership with ViroPharma. At 36 times book value and a shrinking pile of cash, I'd just as soon throw Halozyme back from whence it came.

Clouded judgment
Investors have had consolidation fever in the cloud-computing sector ever since SuccessFactors agreed to be purchased, but this doesn't exactly mean rational thoughts are prevailing. In fact, I'd call the recent trading action in small cap SPS Commerce (Nasdaq: SPSC  ) pretty much the opposite of rational.

The company, while profitable and growing healthfully in the double digits, is trading at an astronomical 368 times trailing-12-month earnings and 58 times next year's estimates. Don't get me wrong, SPS is moving revenue and profits in the correct direction, but it's at nowhere near the pace it should be for the valuation bestowed upon it currently. Even more troublesome, insiders have sold more than 2.5 million shares within the past seven months, many of which represented shares that came from options grants. The company's valuation and lack of insider buying isn't inspiring any confidence in me and I'd advise leaving SPS be until its valuation comes down out of the clouds.

Foolish roundup
Whether it's a lack of innovation or a valuation bordering on insanity, you can always count on your Motley Fool perma-skeptic (i.e. me) to point them out. I'm so confident these three stocks are headed lower I'm going to start them with an underperform rating on CAPS. The question now is, would you do the same?

Share your thoughts in the comments section below and consider adding Build-A-Bear Workshop, Halozyme Therapeutics, and SPS Commerce 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's never understood the obsession with stuffed-animal collecting. 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. 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 (5) | 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 December 22, 2011, at 12:50 PM, Mauricinho wrote:

    Yes Halozyme has done quite well of late but you are missing some of the big picture valuation.

    Its in Roche's interest to transition patients on current Herceptin to use the sub-q Halozyme formulation in Europe because of patent expiration.

    Also you are missing HyQ (Baxter partnered product) which had very good data and one would expect to be approved (in both Europe and US).

    Yes Halozyme will probably still have a cash burn in '12 but it will be significantly less then '11 (they won't be spending much money on the Insulin program) and I believe they've said turning profitable some time in '13. With luck and a few more deals they could turn a profit it '12 too IMO.

  • Report this Comment On December 22, 2011, at 12:52 PM, Mauricinho wrote:

    And don't forget Rituxan (MabThera) data should be out next year too.

  • Report this Comment On December 23, 2011, at 8:31 PM, egobasher wrote:

    Randal Kirk is no dummy, he has had two companies bought out from him at much higher prices. He also knows a lot more about the biotech world than you ever will. I bet anything that HALO will get bought out within two years.

    http://biz.yahoo.com/t/74/657.html

    I think your problem is you don't understand the science.

    Good luck. You will need it!

  • Report this Comment On December 23, 2011, at 10:13 PM, hipslap wrote:

    You are obviosly short and trying to scare it down...Typical of these rag stories...Always a hidden agenda...Let's see, do I believe you with just a headline and no substance? Or a respected investment banking house like Wedbush Morgan that just raised their price target from $14 to $17 dollars, with commentary to back it up? And do I bet against Randal Kirk, with his many amazing biotech successes, who recently put up millions of dollars of his own money in HALO stock purchases?

  • Report this Comment On December 23, 2011, at 10:19 PM, hipslap wrote:

    And let's not forget that 20% of the float is held by insiders, and 47% is held by institutions...Respected analysts at those institutions have done their due-diligence in support of those purchases...

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Related Tickers

9/18/2014 4:02 PM
BBW $13.24 Up +0.02 +0.15%
Build-A-Bear Works… CAPS Rating: *
HALO $9.88 Down +0.00 +0.00%
Halozyme Therapeut… CAPS Rating: ***
SPSC $52.39 Down -0.46 -0.87%
SPS Commerce, Inc. CAPS Rating: *
ALK $46.84 Up +0.68 +1.47%
Alaska Air Group,… CAPS Rating: **
HGSI.DL $0.00 Down +0.00 +0.00%
Human Genome Scien… CAPS Rating: **
VPHM $0.00 Down +0.00 +0.00%
ViroPharma, Inc. CAPS Rating: ***
VRUS.DL $0.00 Down +0.00 +0.00%
Pharmasset, Inc. CAPS Rating: *

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