3 Stocks Near 52-Week Highs Worth Selling

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With the S&P 500 chalking up a five-year high on Tuesday, it probably comes as no surprise that nearly 55% companies in the Motley Fool CAPS database are within 10% 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. Fertilizer products maker Agrium (NYSE: AGU  ) , for instance, recently boosted its upcoming quarterly EPS guidance to more than $2 from a previous range of $1.50 to $1.90. Agrium cited better-than-expected grain and oilseed pricing for boosting demand, but I believe it speaks to a longer-term trend of placing more emphasis on utilizing fertilizers to improve crop yield for a growing world population.

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

Run away... run away!
To quote King Arthur in Monty Python & the Holy Grail, "Run away... run away!"

I'll admit that I'm as stunned as anyone that Keryx Biopharmaceuticals' (NASDAQ: KERX  ) kidney disease drug Zerenex performed so well in trials. Zerenex, designed to treat hyperphosphatemia, a complication often arising in end-stage renal disease, reduced serum phosphorus levels by 0.3 mg/dL during a four-week efficacy period while patients on the control arm saw their serum phosphorus levels rise 1.9 mg/dL. Without question, drug efficacy has been demonstrated by this trial. But can Keryx effectively market the drug? That's an issue I'm very uncertain about.

Keryx responded to its positive results by diluting shareholders with a $55 million offering, but it will almost certainly need to find a commercial partner for Zerenex if it has any hope of effectively marketing the drug. That partner will ultimately take its cut and leave Keryx on the borderline of profitability at best in a few years. It is worth mentioning that Keryx does have a partner in Japan, JT & Torri, but beyond that, I don't see how it succeeds in the U.S. without a commercial partner.

Beyond Zerenex, Keryx has absolutely nothing in its pipeline.Keryx's share price was crushed last year when Aeterna Zentaris reported that cancer drug perifosine had failed to meet its primary endpoint in a multiple myeloma study. Perifosine had been licensed to Keryx within the United States, Canada, and Mexico by Aeterna Zentaris. Had Zerenex failed in trials, Keryx would be sitting on its hands with an empty pipeline.

With plenty of questions yet to be answered, I'm staying away from this killer rabbit!

Something smells fishy
Normally, health and beauty products tend to survive economic slowdowns pretty well, but the valuation on fragrance maker Inter Parfums (NASDAQ: IPAR  ) is beginning to smell like a rotten egg.

Inter Parfums' entire business structure is to enter into long-term contracts with well-known luxury brand names and manufacture and distribute fragrances for those companies. It currently boasts a portfolio with high-end names like Jimmy Choo and Montblanc. Unfortunately, in June Burberry made it clear that it wanted to terminate its agreement with Inter Parfums and develop its own fragrance. The termination netted Inter Parfums a hefty $236 million pre-tax payment, but leaves its sales severely lacking in the growth side of its business in the coming year, in spite of a newly signed 10-year agreement with Alfred Dunhill.

Another factor that makes me want to steer clear of Inter Parfums is its overreliance on Europe. According to its annual report, 87.4% of all sales were derived from Europe. In the fourth quarter, its Europe sales actually fell 10% as widespread austerity measures are beginning to cut spending throughout the entire region. Inter Parfums is doing what it can to expand into the U.S., but as the country represents just one-eighth of its sales, it's going to need Europe to turn around if it expects any organic growth.

Based on the midpoint of its newly issued EPS guidance ($0.91), Inter Parfums is valued at 24 times 2013's earnings -- a very steep price to pay for a company so intricately tied to Europe and that just lost Burberry as a customer.

Reality called, it wants you back
Shareholders of residential and commercial building products supplier Nortek (NASDAQ: NTK  ) : Reality called and said it wants you to wake up from fantasyland!

Nortek, a maker of kitchen range hoods and exhaust fans, has benefited from a resurging housing market where home prices have begun to creep higher and inventories have fallen dramatically. However, Nortek's share price has nearly tripled over the past year despite its bottom line being anything but robust.

A quick look at its latest quarterly filing reveals a 1% year-over-year increase in third-quarter sales to $557.4 million, a 260-basis-point improvement in gross margin to 28.4%, and its fourth consecutive quarter of positive free cash flow. Again, this is a step in the right direction, but on a trailing-12-month basis, Nortek is now valued at 53 times earnings. For that sort of P/E I'd better be investing in a high-growth or high-technology type of company, not one that produces range hoods and exhaust fans.

With only four quarters of positive free cash flow under its belt and an astronomical trailing P/E, I'm going to need to see much stronger growth before I'd even give it a remote chance of heading higher from here.

Foolish roundup
This week's theme is all about stepping back from the ledge. Keryx, Inter Parfums, and Nortek all have serious questions to answer with their recent share price appreciation. Keryx's marketing of Zerenex, Inter Parfums' loss of Burberry, and Nortek's few avenues of growth are clear concerns that could merit some attention from short-sellers.

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?

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Read/Post Comments (11) | 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.

  • Report this Comment On January 31, 2013, at 1:10 PM, stepstocks wrote:

    I think you need to do some homework b-4 you write an article. Keryx shares were cruches last April when THEY reported bad results on Perifosine and if you look back i think you will find that it wasn't for the mulitiple myeloma study. Anterna Zentaris is still running that study i believe.

  • Report this Comment On January 31, 2013, at 2:09 PM, Kleeno65 wrote:

    Sean, I agree with stepstocks analysis. Someone should take your computer away. The failed trial for Keryx regarding Perifosine was in a trial looking at Colon Cancer. You should also take time in listening to last Monday's Conference call. What Keryx has is a potential blockbuster, with numerous advantages over the current therapies available. Especially on the secondary endpoints, affecting EPO and Iron usage. You also failed to mention that Keryx may be a potential take over target. There were several times that the CEO mentioned during the Perifosine trial that he was looking to sell the company. The "dilution" you mentioned raised capital to put Keryx in a better bargaining position financially, whether they go it alone or adding to shareholder value if they decide to sell. That $55 million is a blip, considering the stock has been seeing volume ranging from 30-60 million shares exchanged all week, up from it's 1.4 million share average. "I'm as stunned as anyone", that someone allows you to blog on the Motley Fool. Maybe I'll have my 4 year old daughter submit a financial blog to the Fool this week.

  • Report this Comment On January 31, 2013, at 2:33 PM, NoFoolInvest wrote:

    I will like to applause to those investors who had gut to hold their shares through P3 trials. Now they may get their reward of 144% up within three days. I believed that they had high possibility to get positive results based on their P2 results. Sorry for those shorts with expiration in Feb 2013.

    However, now I believe that KERX stock price will go down quickly for the following reasons:

    1) Some investors were over-excited by the, sort of un-expected, excellent clinical data in P3. Now the stock price popped up about 144% in three days, Wow. What goes up fast will goes down in the stock market once investors understand Zenerex very limited potential market.

    2) There are two types major phosphate binding compounds in market to compete with Zenerex: Calcium contained drugs (PHoslo) and non-calcium conatained drugs (Renagel/Renvola, and Fosrenol). All of them are similar effective to lower down serum phosphates.

    Calcium contained agents are the cheapest one,$1200 per patient per year. You may even use Tums, Calcium Carbonate, $99c per bottle, to lower down your serum phosphate. Although some patients may concern about its side effect: calcium deposit in blood vessel, majority of patients population will still use calcium contained agents. Revenue of Phoslo with about $80m in 2011 are dropping very year.

    3) Non-Calcium contained drugs will be direct competitors to Zenerex. Currently Renagel/Renvola were sold most for about $800m in 2011. However, its major patents will be expired in 2014. I don't think Zenerex can compete with Renagel/Renvola in terms of its similar efficacy and side effect. Renagel/Renvola will have much lower price and much stronger sales force from Sanofi in 2014.

    4) I agree that Zenerex has additional benefit for anemia over the others. However, iron therapy is not big issue for later stage renal dialysis patients. Now liquid iron can be easily IV delivered to patients during necessary dialysis process. So Zenerex doesn't have any game changer advantages.

    5) In term of dosage, it is still unknown if Keryx decides to use one dose per day or three dose per day for FDA approval. Forenol from Shire has been used once daily to lower serum phophorus level. On top of that,, Forenol can be used for the other more important implications opposed to Keryx's Zenerex only one implication: lower phosphate in blood.

    6) Sensipar, Fosrenol and Renagel/Renvela are Likely to be Negatively Impacted in 2014 When Oral Medications Become Included in the Dialysis Bundle, According to a Recent BioTrends Report. So will be Zenerex if it is FDA approval in 2014.

    In summary, I don't think that Zenerex will be a game changer in lower phosphate drug market. Keryx stock price will eventually go down dramaticallly within one year in my humble opinion.

  • Report this Comment On January 31, 2013, at 5:00 PM, Kleeno65 wrote:

    NoFoolInvest, my guess is that you failed to listen to the Conference call. Secondly, the product is a game changer potentially saving dialysis clinics upwards of $750 million, a year. Thirdly, it wasn't so much as we were relying upon positive Phase II trial data. Keryx's Japan partner had just finished their successful Phase III trial and submitted for the NDA in Japan, prior to the release of the US study. So those who paid attention to the Japan data were able to get in around $3.00 prior to this past Monday's release. The shocking part of the US study was meeting and exceeding the secondary endpoints, potentially opening it up to pre-dialysis patients making Zerenez a multi-billion dollar company. We are more than aware of the competitive picture out there, which is why many longs continue to hold for greener pastures. Again, did you listen to the conference call???

  • Report this Comment On January 31, 2013, at 5:36 PM, NoFoolInvest wrote:

    Kleeno65, Do you still naively believe what Keryx's management said? The same management team over-promised two major drug developments which failed miserably in the past. If someone fools you once, they are fool. If the same person fools you twice, you are fool. If they fools your three times, what shall we say?

    If you compare Zenerex with Fosenol, you will have more objective estimated market for Zenerex. Fosenol is not only for phosphate binding but also for chronic renal disease which has more market value than Zenerex. Fosenol has been market for years and has about $200m in market in 2011. Now its sales is plunging. I dont even bother to mention the other phosphate binding agents in generic market. So please tell me how did management team came up $750m revenue for Zenerex objectively?

  • Report this Comment On January 31, 2013, at 6:10 PM, goldozone wrote:

    Nice pullback for the next Leg > Time to load up $KERX << Strong Buy in my opinion

  • Report this Comment On January 31, 2013, at 6:10 PM, goldozone wrote:

    Healthy trading today. Very normal pullback and accumulation, new support level drawn.

  • Report this Comment On January 31, 2013, at 6:10 PM, goldozone wrote:

    Go $KERX

  • Report this Comment On January 31, 2013, at 6:13 PM, goldozone wrote:

    RNN Buy rating yesterday at Maxim

  • Report this Comment On January 31, 2013, at 6:17 PM, Kleeno65 wrote:

    Again, noFOOLinvest, have you taken the time to listen to the conference call. By your ignorant blabbering and uniformed posts, I would say you have not listened to the conference call. Not only was the $750 million in savings mentioned in the conference call, it was further clarified. It was also called a game changer by the Nephrologist from Vanderbilt that helped lead the study. So I ask you again, and again, and again. DID YOU LISTEN TO THE CONFERENCE CALL???? Or are you just a sour short???

  • Report this Comment On January 31, 2013, at 9:30 PM, NoFoolInvest wrote:

    Kleeno65, you just don't get it. when their management fooled our investors twice, would you still go to their conference to get fooled in the third times? Of course I never, ever to attend their conference.

    It was my mistake to mis-understand $750m in savings. So please tell me what they objectively to make conclusion of $750m in saving based on facts. Please don't be naive to trust what someone said so, especially a nephrologist who is financially related to Keryx.

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