3 Stocks Near 52-Week Highs Worth Selling

The Dow Jones Industrial Average this week briefly touched the 13,000 mark for the first time in years, signaling continued strength in this multiyear rally. 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. Discount retailer TJX (NYSE: TJX  ) has been riding the wave of price-conscious consumers for years and just yesterday posted a 42% rise in net income as same-store sales rose 7% over the year-ago period.

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

Riding high on the hog
I’m sure this isn’t going to make me Mr. Popular, but it just might be time to get off the hog. Harley-Davidson (NYSE: HOG  ) recently reported full-year results in which the motorcycle manufacturer noted a 13% rise in sales amid rising consumer confidence. The results themselves were decent given the weak economic conditions seen around the world, but I think now might be the time to hop off this ride.

Though not expensive by historical standards, Harley-Davidson is currently trading at more than four times book value and 12 times cash flow. This may not sound like much, and if you compare it to the early 2000s, this is pretty much in line with the metrics back then. But consider that Harley-Davidson was growing much faster a decade ago than it is now. With sales growth projections of only 6% this year, it doesn’t make a lot of sense to buy into the stock, which is at multiyear highs in terms of book value and price-to-cash-flow. Add in the potential for European uncertainty and I feel you have enough question marks to park this one in the garage for a while.

This valuation needs a diet
While we’re on a valuation kick, let’s also take a closer look at nutrition and weight loss company Herbalife (NYSE: HLF  ) . If you recall, one of my least favorite sectors out there is the nutrition and weight loss sector because consumers' fickle spending habits, business seasonality, and low customer loyalty usually quells any short-term strength in these stocks. This has been my argument against owning NutriSystem (Nasdaq: NTRI  ) for years and it is the primary reason the stock is down about 40% over the trailing 12 months.

Herbalife has enjoyed a recent bout of success. In its fourth-quarter report, Herbalife posted a 20% rise in sales and a 22% jump in profits and boosted its full-year 2012 outlook higher than what Wall Street had predicted. Still, just like Harley-Davidson, Herbalife is trading at multiyear highs in terms of trailing-12-month earnings (20), price-to-book (14), and price-to-cash flow (15). I simply don’t trust the brand loyalty of consumers in this sector and think it would be prudent to avoid the stock at these levels.

Twilight or sunset?
2011 was not a particularly strong year for movie sales. Total ticket sales fell for a second consecutive year, and 2012 hasn’t started off strong either, with sales currently on pace to drop for a third year in a row. This bodes particularly poorly for Lions Gate Entertainment (NYSE: LGF  ) , which has only had four profitable years in the past 10.

Lions Gate is expecting to at least return to profitability in 2012, thanks to the release of another movie in the Twilight series. But can you really trust the stock beyond just one major title? I certainly can’t -- especially at 42 times book value. Outside of digital and on-demand revenue, Lions Gate’s third-quarter results echoed the string of continued yearly losses. Until Lions Gate can consistently produce profitable quarters, I’d leave this curtain closed.

Foolish roundup
As the market indexes continue their march higher, valuation is becoming more and more important. These three stocks simply don’t have the earnings potential to match their valuation and look like excellent sell candidates. 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!

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He is fully aware that he’d be way too dangerous on a motorcycle. 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 (13) | Recommend This Article (1)

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 February 23, 2012, at 12:53 PM, apteds wrote:

    LIONSGATE's "HUNGER GAMES" are expected to be even bigger than that of "HARRY POTTER," yet the Motley Stupid Fool didn't even mention the movie at all. Ask any kid in high school and they'll tell you what the HUNGER GAMES is.

    The books alone sold 30 million copies and is the best seller on AMAZON.com. Twilight is OLD news, and Lionsgate will make good money there too. But don't be fooled by the stupid fool who wrote this article. MARCH 23rd will rake in $75 million plus that weekend alone. Maybe closer to $100 million as it's the most anticipated movie of the year.

    THE MOTLEY FOOL IS A TOTAL FOOL!!!

    He's a DUMB FOOL!!!

  • Report this Comment On February 23, 2012, at 12:57 PM, apteds wrote:

    CRAMER said last week on CNBC the movie will make LIONSGATE 87 cents a share next quarter. That makes LIONSGATE 15 times earnings at current levels, totally undervalued.

    Here's the link to CRAMER on LIONSGATE:

    http://www.cnbc.com/id/46383710?__source=yahoo|headline|quot...

  • Report this Comment On February 23, 2012, at 1:01 PM, lobec wrote:

    I don't get it. Can anyone write an article on Motley Fool? Who is vetting them?

  • Report this Comment On February 23, 2012, at 1:26 PM, apteds wrote:

    The Motley Fools have absolutely no credibility whatsoever. They really are complete idiots. They obviously don't do any research before making dumb comments. I'm surprised that are still in business!

  • Report this Comment On February 23, 2012, at 1:58 PM, suavan1 wrote:

    This guy who wrote this article is an idiot!! Herbalife is a winner....maybe you need to take the twinkies out of your mouth.

  • Report this Comment On February 23, 2012, at 2:05 PM, apteds wrote:

    Contestants can use some twinkies in the Hunger Games! They need to eat!!

  • Report this Comment On February 23, 2012, at 4:57 PM, fairway62 wrote:

    To analyze Lionsgate and not even mention Hunger Games is beyond comprehension. What an irresponsible and incomplete assessment.

  • Report this Comment On February 23, 2012, at 5:53 PM, DaveGruska wrote:

    Sean Williams is not a fool. He especially has a great knack for picking out companies about to underperform.

    I don't know about the other two calls, but I am an LGF stockholder, and you're kidding yourself if you think this is anything more than a speculative investment.

    But to the statement FTA: "But can you really trust the stock beyond just one major title?"

    The "Saw" series certainly did wonders for them, and "Hunger Games" will be 4 movies, so I'd say it could be transformative for them. The Summit (Twilight) buy is supposed to be accreditive to earnings soon, they just signed a bunch of licensing deals for a number of their titles. "The Expendibles" series also looks promising, and "Mad Men" should be a nice cash cow for them. A lot of "coulds", but it's a bet I'm willing to take, even past the hype of the initial Hunger Games.

    @apteds - he linked to an article about Hunger Games.

  • Report this Comment On February 23, 2012, at 8:50 PM, suavan1 wrote:

    To quote the great Jim Cramer.... "HLF still has room to run" great company, good business model!

  • Report this Comment On February 24, 2012, at 1:16 AM, seanc7nyc wrote:

    The lack of inclusion of the Hunger Games in the assessment of LGF is crazy. It's not just any film. It will end up being a trilogy of huge tent pole event films.

    Just today, the first film posted the highest first-day advance sales in Fandango's 12-year history.

  • Report this Comment On February 24, 2012, at 9:08 AM, 91x9x19 wrote:

    I disagree - Harley Davidson is poised to grow even more. They went through a rough patch with the down economy, but they hung on.

    Now there are several things going for them, rising confidence, rising markets, rising gas prices (motorcycles get great gas mileage), and a bottom in the housing market. I think things are only going up from here for Harley.

  • Report this Comment On February 24, 2012, at 1:30 PM, JohnnyYuma13 wrote:

    They want me to sell my wining stocks HOG is my largest with 3000 shrs yet I listened to them when they recommended Southwest Airlines and Ford and you know where those stocks went, South way South

  • Report this Comment On February 27, 2012, at 1:12 PM, Turfscape wrote:

    Wow. I would not have expected this article to touch off such vitriol. It seems so innocuous.

    Sean, HOG is definitely at a point where it may make sense to reap profits. While I'm bullish on the company, it may hold here for a year or two before making another upward move. There's a LOT of good news to come for Harley-Davidson, in my opinion (they've made all the right moves in transforming their manufacturing, they've got an anniversary year bounce coming up, they're making solid moves into new markets) but, I think most of this news is factored in at it's current price.

    If you like Harley-Davidson, I think it's safe to hold. If you like HOG as an investment...consider pulling profits and jumping back in down the road a little.

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