3 Stocks Near 52-Week Highs Worth Selling

The broad-market melt-up continues in spite of tepid global forecasts. Nearly 40% of all stocks within the CAPS database are now within 10% of a 52-week high. For skeptics like me, that's an opportunity to see whether companies have earned their current valuations.

Keep in mind that some companies deserve their current valuations. Movado Group (NYSE: MOV  ) , for instance, continues to defy Wall Street's forecasts and recently reported a 78% increase in EPS amid a 15% constant currency increase in sales. This is further proof that Swiss watch retailers and name-brand accessory providers are still bucking the trend of weaker consumer spending.

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

Grand-Slam this back where it came from
I have a harsh reality to present to those of you who frequent America's mainstay diner, Denny's (Nasdaq: DENN  ) : It's just not cool anymore. To be honest, I'm not sure if Denny's ever was the hip place to go, but it's really beginning to lose its pizzazz over the years as casual-dining rival Buffalo Wild Wings (Nasdaq: BWLD  ) and its peers continue to stay open later, expand faster, and focus on younger crowds with a ton of success (and in Buffalo Wild Wings' case, a crowd that loves a bar and grill atmosphere complete with many TVs).

In Denny's latest quarter, the casual-dining restaurant chain reported an 8% decline in revenue as it closed 36 total restaurants compared to the year-ago period. Profits also declined as a result of a $7.9 million credit refinancing charge. Perhaps the biggest concern is that comparable-store-sales growth was a meager 0.8% and was led by price increases rather than customer traffic. If I've learned anything about investing in restaurants over the years, it's that traffic drives growth, not price increases. Tack on worries about corn and other commodity increases eating into its margins, and I think you have all the right reasons to send Denny's back to the kitchen.

Time to pack it up?
You probably will have a hard time finding a more picture-perfect 52-week chart than you'll get with packaging materials provider AEP Industries (Nasdaq: AEPI  ) . The company, which made a sizable $25.9 million acquisition of Webster Industries in 2011, anticipates that Webster's addition will increase its product offerings and boost profitability. I tend to agree to an extent, as EPS through the first six months totaled $0.94 versus just $0.06 in the year-ago period.

However, my affinity for optimism stops right there and ends with a lot of unanswered questions. To begin with, resin prices are a big part of AEP's operating expenses, and with petroleum being a primary component of some resins, higher oil prices mean higher costs for AEP. Global weakness is also a concern I worry about. Slower growth in China coupled with spending slowdowns in Europe and in the U.S. could put a damper on packaging demand. Finally, where's the incentive to own a stock that's already doubled in value? There's no dividend and, backing out the Webster acquisition, quarterly sales growth drops from the 19% reported to just 7.6% -- and even that was helped out considerably by pricing increases and not so much volume growth. Shareholders would be wise to consider packing up now before it's too late.

Black Tuesday
Forget the pessimistic view of retailer Tuesday Morning (Nasdaq: TUES  ) ; what I want to know is who are the people on the other side of this trade that are actually like, "Yay! Lamps, rugs, and silk plants... woohoo!" Perhaps I'm being a bit facetious, but doesn't Williams-Sonoma sort of have this odd market of home decor covered?

Almost two weeks ago, Tuesday Morning reported second-quarter results that highlighted a $0.02-per-share adjusted loss and a remarkably unexciting 0.2% increase in same-store sales. Neither carrying necessity items nor being a primary remodeling stop, Tuesday Morning finds its discount products aren't exactly flying off the shelves. On top of this, the company recently fired its CEO, so it's in the midst of a management transition, and shareholders have suffered through five straight years of stagnant sales and operating margins ranging between 0.3% and 2.8%, according to data found at Morningstar. The retailer is angling to turn itself around through tight cost controls, a website revamp, and a loyalty rewards program, but the dust is collecting on its home decor products in the meantime. Until I see sustained growth, this is a retailer I'd suggest avoiding.

Foolish roundup
This week's theme is "Where's the beef?" In all three cases, either new store openings or acquisitions are hiding much weaker organic growth than is visible on the surface. With macroeconomic trends working against all three, this looks like a slam dunk case of the "sell"s.

I'm so confident in my three calls that I plan to make a CAPScall of underperform on each one. The question is: Would you do the same?

Share your thoughts in the comments section below, and to avoid investing in stocks like these, consider getting a copy of our special report: "The Motley Fool's Top Stock for 2012." In it, 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. Mention eating at Denny's and he'll run the other way. 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 Movado Group, Buffalo Wild Wings, and Costco. Motley Fool newsletter services have recommended buying shares of Buffalo Wild Wings, Williams-Sonoma, Morningstar, and Costco, as well as writing covered calls on Buffalo Wild Wings. 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 (0) | Recommend This Article (2)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2001739, ~/Articles/ArticleHandler.aspx, 10/22/2014 8:50:50 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement