There's no shortage of 52-week-high fodder to choose from this week, with more than 1,000 stocks currently trading within 5% of a new 52-week high. 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. Cloud play Rackspace Hosting
Still, other companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
Investors in business social-networking developer Jive Software
In its very-reminiscent-of-1999 fourth-quarter report last week, Jive pointed to a 53% jump in revenue and the fact that its quarterly loss of $0.28 was smaller than Wall Street had expected. What I saw was a company that can't control its costs (expenses rose 64%) and is a long way from turning an operational profit. What I found more hilarious was CEO Tony Zingale's comment that the fourth quarter was "a strong finish to a remarkable year." I'm not sure I'd call another year of losses "remarkable." As for me, I'd be a seller of the stock at these levels.
An approaching storm
Cloud-computing plays are arguably hot as Rackspace demonstrated, but make no mistake about it, NetSuite
If that isn't enough reason to avoid the stock, perhaps the 73 separate insider sales over the past six months will persuade you. No? Well, how about the fact that expenses grew just as quickly as revenue in the fourth quarter (23%)? It's no wonder that NetSuite continues to produce small quarterly profits, yet its valuation is in the stratosphere. Foolish colleague Tim Beyers seems to feel otherwise about NetSuite, but I think the wrong type of cloud is settling over this stock and it looks like a storm could be brewing.
As much as I'm a big fan of this rally in technology stocks, I also know full well that the market isn't going to go straight up. I've already warned on numerous occasions how dangerous an investment triple-levered ETFs can be, so it's probably not much of a surprise that I'm recommending you head for the exit of the Direxion Technology Bull 3X
This week we took a long and hard look at three possibly overvalued companies. In the end it always comes down to valuation; and I don't feel the potential of these three stocks matches their current valuation. I'm so confident in my three calls that I plan to make a CAPScall of underperform on each one. The question now is: Would you do the same?
Share your thoughts in the comments section below and consider using the links below to add these three stocks to your free and personalized watchlist so you can keep track of the latest news with each company. Also, to avoid investing in stocks like these, consider getting a copy of our special report "The Motley Fool's Top Stock for 2012." In this report, our chief investment officer details a play he dubbed the "Costco of Latin America." Best of all, this report is free for a limited time, so don't miss out!