Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



3 Stocks Near 52-Week Highs Worth Selling

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Don't let yesterday's post-election tumble fool you -- more than a handful of companies are still within striking distance of a new 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. President Obama's reelection is great news for hospital operators like HCA Holdings (NYSE: HCA  ) , which look forward to the full implementation in 2014 of the Affordable Care Act, which should begin to protect them from bad losses currently incurred by uninsured patients who can't pay their medical bill.

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

Trimming the fat
Why does it seem like every three years we go through a peak and trough cycle with weight-management stocks? In 2004, 2007, and 2010, Medifast (NYSE: MED  ) hit new highs only to fall dramatically after failing to meet rising expectations. If you look at NutriSystem (Nasdaq: NTRI  ) , the pattern is relatively similar. Yet here we are again following a large third-quarter earnings beat from Medifast, and optimism is surging in the weight-management sector. I believe, though, it's time for these stocks to once again slim down.

Medifast, NutriSystem, and a multitude of other weight-management companies suffer from a myriad of fatal flaws. For one, customer loyalty is practically nonexistent. The average time period that consumers stick to a particular diet or exercise is relatively limited, which makes recurring revenue extremely rare. Second, food inflation costs are hammering all food-based companies, putting margin pressure on a sector that's very hesitant to raise pricing. Finally, weight-management stocks are extremely susceptible to downward cycles in economic activity. One of the first things consumers will remove from a tightening budget is optional spending such as the products that Medifast or its peers produce. To me, it seems like a mere matter of time before Medifast is cautioning investors regarding its weak outlook -- especially if its pattern holds true.

Just for sport
I have an honest question for you all: When was the last time you were in a Big 5 Sporting Goods (Nasdaq: BGFV  ) ? Having a hard time remembering? Because I am as well!

According to Big 5's turnaround campaign, its new marketing efforts and pushing its Fourth of July weekend results into the third quarter from the second quarter helped boost the company's net income by 41% as revenue climbed 7% to $251.8 million. Both figures surpassed Wall Street's expectations and have caused Big 5 to soar more than 50% since its results last week. But were the results really that impressive? I don't think so!

For one thing, you heard from management that its results benefited from a shift in Fourth of July results from the second to third quarter. That's not really earnings improvement; it's just a shift. Also note that revenue rose 7% yet income climbed 41%. This means that Big 5 is becoming more operationally efficient, but cost cuts are only going to drive growth so far for the sporting goods company. Also, the company's 5.2% jump in same-store sales looks great on the surface, but had more to do with comparisons against poor-weather-related comps last year. I'm not saying Big 5 isn't taking the appropriate steps to turn its business around, but a 50%-plus move in the stock isn't warranted based on its tepid in-line EPS forecast for the upcoming quarter. 

Slam the door
It's been at least a few weeks since I included another housing-related stock in this series, so I decided to end with Quanex Building Products (NYSE: NX  ) , a provider of engineered and aluminum sheet products that supplies everything from housing components (e.g., window and door components) to thin-film solar panel sealants. I can't think of much that I dislike more right now than housing and solar, so this appears to be a perfect underperform selection.

To begin with, Quanex has badly missed Wall Street's EPS projections in three of the past four quarters in spite of the housing sector firming. In fact, its third-quarter results highlighted a 6% drop in revenue and a huge tumble of 83% in year-over-year EPS that was wrought with one-time expenses. Europe's continued weakness compounded with the looming fiscal cliff is more than likely enough of a reason for consumers to holster their cash over the coming months. Add on the disaster that is Hurricane Sandy, and you have every reason to run in the other direction.

Foolish roundup
This week's theme is that sometimes history really does repeat itself. Quanex's multiple quarterly EPS misses, Big 5's never-ending turnaround, and Medifast's regularly timed troubles signal to investors that they may want to walk on eggshells with these stocks near a 52-week high.

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?

These three stocks may have all the wrong type of history on their side. However, three stocks handpicked by our analysts could have all the right tools to help you retire rich. Click here to get your copy of this latest special report, for free, and find out the identity of these three companies.

Read/Post Comments (0) | Recommend This Article (4)

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.

Compare Brokers

Fool Disclosure

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: 2101889, ~/Articles/ArticleHandler.aspx, 5/25/2016 11:23:35 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...

Sean Williams

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and investment planning. You'll often find him writing about Obamacare, marijuana, drug and device development, Social Security, taxes, retirement issues and general macroeconomic topics of interest.

Today's Market

updated Moments ago Sponsored by:
DOW 17,871.03 164.98 0.93%
S&P 500 2,090.54 14.48 0.70%
NASD 4,895.08 34.02 0.70%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/25/2016 11:05 AM
BGFV $8.61 Up +0.09 +1.06%
Big 5 Sporting Goo… CAPS Rating: ***
MED $34.58 Down -0.31 -0.89%
Medifast, Inc. CAPS Rating: ****
NX $19.40 Up +0.03 +0.13%
Quanex Building Pr… CAPS Rating: No stars
HCA $78.23 Up +0.67 +0.86%
HCA Holdings, Inc. CAPS Rating: ***
NTRI $27.63 Up +0.30 +1.10%
NutriSystem, Inc. CAPS Rating: *