3 Stocks Near 52-Week Highs Worth Selling

Optimism that a fiscal cliff deal will get done before Jan. 1 has put the market into general rally mode despite the numerous negative implications if we go "cliff-diving" and no deal gets done. 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. Health-service organization CIGNA (NYSE: CI  ) , for example, looks poised to benefit from the implementation of the Affordable Care Act in 2014 and, despite being near a new 52-week high, trades at a still inexpensive eight times forward earnings.

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

3D, not for me!
There's no denying that 3D Systems (NYSE: DDD  ) is at the forefront of the next great manufacturing revolution with 3-D printing technology, or that the lowering cost of 3-D printing is going to work in its favor over the long run. However, a multitude of other factors, including its pathway to growth, its valuation, and its history, just have me wanting to avoid the stock like the plague.

In terms of growth, 3D Systems has chosen to acquire companies like it was collecting Furbys rather than to focus on growing what it's acquired organically. As noted in our analyst debate last month, 3D Systems has acquired 31 companies over just the past three years. That's fine and dandy, but I'd have to think there are going to be synergy hiccups in there somewhere!

Based on valuation, 3D Systems is trading at a blistering 33 times forward earnings, nine times sales, and seven times book value -- all at the upper end of its historical range over the past decade.

Finally, history says that we as investors are awful predictors of when a technology will take off. We overpriced the emergence of business-to-business commerce, we overhyped genome sequencing, and we definitely overhyped the importance of Chinese companies. 3D printing will eventually be a great endeavor, but we aren't there yet.

So nice, I'll say it twice!
Following much deliberation and another cup of coffee, betting against 3-D printing companies at this level seems so right that I'm going to make it a daily double by also putting in my two cents on Stratasys (NASDAQ: SSYS  ) .

Let me start off by saying that between the two, I feel Stratasys actually offers the better long-term value as its recent purchase of Objet should net it more enterprise and specialized clientele, giving it the potential to outgrow 3D Systems organically for years down the road. Unfortunately, that still doesn't mean much when history and valuation aren't exactly on your side.

Stratasys, following its purchase of Objet, is trading at an even more aggressive valuation: 42 times forward earnings, nine times sales, and eight times book value. Even if Stratasys can maintain a long-term growth rate near 17% to 20%, it's still valued at more than two times its PEG ratio. Plus, the same arguments I made for 3D Systems, regarding overhyping and failing to understand the technology, hold true for Stratasys. All value has simply been squeezed out of this sector and I don't see how else investors are going to squeeze blood from these turnips in 2013.

Not feeling inspired
Few sectors have more riding on the line in terms of whether or not a fiscal cliff deal gets done more than human resource management companies. Job placement companies like Monster Worldwide (NYSE: MWW  )  -- which have thus far refuted any fiscal cliff impact -- have struggled to generate profits due to the weak employment environment and businesses simply holding pat until they know for sure which way Congress will lean with regard to taxes and spending cuts. That's why I feel resource management solutions provider Insperity (NYSE: NSP  ) makes a great short-selling candidate.

Insperity shares have been on fire recently as investors chased its share price higher following a $1 special dividend declaration. However, that feeling of elation may be short-lived, as I suspect the outcome of the fiscal cliff talks will be negative for Insperity no matter what the verdict. If no deal is reached, corporate spending will plunge and unemployment will assuredly rise. If a deal is reached, Insperity's results will languish from a quarter of non-commitment from businesses waiting for a verdict, and could struggle as spending is reined in to accommodate a lower-growth environment.

Over the long term, Insperity looks to have the right tools to succeed, but over the next three years, I'm certainly not willing to pay upward of 18 times forward earnings for a company dependent on strong economic growth to drive its bottom-line results.

Foolish roundup
Let's face it; it's about valuation every week, but this week, more so than the others, it's about investors expecting a miracle now when it's going to take years for these businesses to realize their true potential.

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?

More expert advice from The Motley Fool
3D Systems is at the leading edge of a disruptive technological revolution, with the broadest portfolio of 3-D printers in the industry. However, despite years of earnings growth, 3D Systems' share price has risen even faster, and today the company sports a dizzying valuation. To help investors decide whether the future of additive manufacturing is bright enough to justify the lofty price tag on the company's shares, The Motley Fool has compiled a premium research report on whether 3D Systems is a buy right now. In our report, we take a close look at 3D Systems' opportunities, risks, and critical factors for growth. You'll also find reasons to buy or sell, and receive a full year of analyst updates with the report. To start reading, simply click here now for instant access.


Read/Post Comments (9) | Recommend This Article (7)

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 December 20, 2012, at 5:17 PM, dion2727 wrote:

    An elaborate use of language which says nothing new .If you have a profit in these companies you could SUGGEST that some money be taken off the table and buy back later on dips that MAY take place.Be positive and stop trying to hurt these

    companies.

  • Report this Comment On December 20, 2012, at 5:26 PM, dion2727 wrote:

    Using phrases LIKE THE PLAGUE are a reflection

    of an attitude not compatible with thoughtful analysis.

  • Report this Comment On December 21, 2012, at 8:53 AM, lynmar79 wrote:

    dion2727, Mr Williams clearly wrote a biased hit piece....I could care less about his motivation/agenda, but it's another stain on TMF's brand and does not say much about it's paid staff.

  • Report this Comment On December 21, 2012, at 9:11 AM, divinediscerner wrote:

    Re: nsp

    The gains had little to do with the special dividend. This was due to a $50 million dutch auction, also announced at the time of the special dividend, that is able to buy back over 6% of their float.

  • Report this Comment On December 21, 2012, at 11:12 AM, dion2727 wrote:

    Yahoo also violated their trust when they referred to the opening drop of ddd of 3% as a nosedive.Maybe they should review their corporate performance including the yahoo stock as being catastrophic on the basis of their current scoring system.I believe all investors must be extremely conscious of the words used by analysts??? and let them know in no uncertain terms our disdain for the miserable reporting and interpretations.

  • Report this Comment On December 21, 2012, at 5:03 PM, panamajack1 wrote:

    Do you suppose this guy has shorts on these companies.

  • Report this Comment On December 22, 2012, at 10:40 AM, lynmar79 wrote:

    panama, imo, he's not short on any of the four stocks. These guys are paid by the piece, and as a result you get this level of insight.

  • Report this Comment On December 23, 2012, at 1:07 AM, lowmaple wrote:

    panamajack1:your insinuation is proof of your motives .

    READ the disclaimer at the end of the article!!!

  • Report this Comment On December 26, 2012, at 4:34 PM, WineHouse wrote:

    Fascinating. Only recently TMF was hyping 3D and SSYS (those were the "secret" companies whose names you could only get if you subscribed to the Tom Gardner newsletter, remember?). Yinging and yanging like that is what causes over-and under-priced market valuations --- swinging from those trees can either make you rich or make you poor, depending on how good you guess and how fast you act. But all of this says nothing about long-term success of the companies.

    BTW, I'm not so enthusiastic about the merger with Objet, simply because it's hard to be enthusiastic about merging with a company that "lives" in a politically unstable and dangerous environment (in this case, Israel). Especially since the new combined company is no longer a US company.

    I say all this, but admit to being long on both 3D and SSYS. I'm also long on DASTY. But these account for only a tiny tiny bit of my total portfolio, which is mostly "boringly sane stuff" like PG, KO, HNZ, UN / UL, GIS, K, KMB, ABT, CL, CLX, GPC, etc. They may not make me "rich" but I hope they keep me solvent through my retirement!

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