3 Stocks Near 52-Week Highs Worth Selling

Earnings season is once again upon us, and Santa Claus delivered a mighty fine rally to start the new year. For optimists, these rallies may seem like a dream come true. For skeptics like me, they're opportunities to see whether these companies have actually earned their current valuations.

Keep in mind that some companies do deserve their current valuations. Audio and electronics manufacturer Voxx (Nasdaq: VOXX  ) crushed Wall Street estimates this week by $0.07 per share and noted that gross margin expanded by 770 basis points over the year-ago period to 28.9%. Those figures are hard to argue against.

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

Growing pains
After briefly being right (for one month) last year, I'll welcome AutoZone (NYSE: AZO  ) back as the very first two-time contestant on this weekly column. I have multiple reasons for not trusting the rally in AutoZone.

First, the company has been aggressively buying back shares. This reduces the amount of outstanding shares, but makes year-over-year EPS comparisons seem better than they actually are. Secondly, the company's massive debt load is only growing -- currently at $3.35 billion and up significantly from the $2.96 billion it had one year ago. This debt is the reason that AutoZone actually sports negative shareholder equity. Third, year-over-year same-store sales growth is slowing because most auto parts suppliers are up against tough comparisons in 2010 and early 2011. Finally, insiders have been exiting the stock en masse, with nearly 2 million shares sold over the past six months. Far too many red flags if you ask me.

Spare some change?
One need only look at what happened to Family Dollar (NYSE: FDO  ) last week to realize that dollar stores are no longer looking at invincible as they did this time last year. Family Dollar met earnings expectations but fell $20 million shy of consensus sales estimates. The company also warned that investors should expect the "extremely promotional" retail environment to continue for some time. With that being said, rival Dollar General (NYSE: DG  ) no longer seems impervious to short-sellers.

Dollar General is currently trading at 14 times cash flow, and its trailing 12-month P/E ratio of 20 also stands leaps and bounds higher than the industry average of 13.3. What's more concerning than even its potential overvaluation relative to peers is how its fate intricately has been tied to Family Dollar over the past year. When one misses, the other has as well. With Family Dollar falling light on its revenue last week, now could be the time to ditch Dollar General as well before it reports.

Where's the beef?
Finally, we have Chubb (NYSE: CB  ) , a global property and casualty insurer. On the surface, this is a very solid company that has rewarded its shareholders with 47 consecutive annual dividend increases. Then again, digging deeper, you'll be left thinking to yourself, "where's the beef?"

From 2004 through 2011, Chubb's revenue hardly budged, vacillating in a range of $13 billion to $14.1 billion. Likewise, its profits and operating margin have been all over the place, growing one year and falling the next. Without any real growth, Chubb has relied on share repurchases to drive EPS growth. Since 2006, Chubb's outstanding share count has fallen from 423 million to now less than 300 million. It's really no surprise then why its profits "appear" to be up. However, looking past the share repurchases, we're left with a company that's struggling to produce investment income in a low-interest rate environment and has been hit with multiple catastrophe losses of late. Despite the 2.2% yield, I'd pass on Chubb here.

Foolish roundup
This week, we found three more companies experiencing what I'd refer to as "growth hiccups." With questionable valuations relative to their peers all three look like fantastic candidates to underperform going forward. In fact, I'm so confident these stocks will underperform, that I plan on making a CAPScall of underperform on each of them (if I haven't done so already). The question now: Would you do the same?

Share your thoughts in the comments section below and consider adding AutoZone, Dollar General, and Chubb to your free and personalized watchlist so you can 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 usually has a field day in dollar stores. 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.


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