3 Stocks Near 52-Week Highs Worth Selling

Commodities may be in the midst of a nasty sell-off, and worries about Cyprus' financial ripples continue to persist, yet 2,300 of 4,800 companies in The Motley Fool CAPS Screener database are still 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. Take Coca-Cola (NYSE: KO  ) , for example, which reported better-than-expected first-quarter results earlier this week as global volume jumped 4%. It also announced a restructuring of its U.S. bottling business in an effort to improve quality and efficiency. This is just another reason you don't bet against what is, according to Interbrand, the most valuable brand in the world.

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

Beware of choppy waters
I freely admit that I have a predisposition that simply will not allow me to like the amusement park sector. I've previously featured Six Flags in my CAPScall series because of the incredible amount of cyclicality associated with the business and its relatively high debt levels. Today, I have a new company to add to the list: Cedar Fair (NYSE: FUN  ) .

Cedar Fair -- aptly tickered "FUN" -- is a water-park operator in North America and Canada, and also owns five hotels. The allure is pretty simple -- a 6% yield and three straight years of record revenue and adjusted EBITDA. The reasons to avoid seem even clearer to me.

To begin with, at least standard amusement parks can be operated year-round. Water-themed parks have such a short time frame when they are usable each year because they're entirely dependent on the weather and/or geographic region they operate in (unless it's an entirely indoor theme park). Second, maintenance, research and development, and new additions cost an arm and a leg, which has put Cedar Fair under a mountain of debt -- $1.56 billion, to be exact. Finally, I don't feel that current Wall Street estimates are factoring in elevated payroll taxes or the soon-to-be-enacted Patient Protection and Affordable Care Act, which could reduce consumers' take home pay and leisure budget.

My advice here would be to be wary of choppy waters in the quarters ahead.

Captain, I just don't have the infrastructure!
Without question, car companies are on a quest to create the perfect blend of performance, fuel-efficiency, and zero emissions. At the moment, only one company has done a good job of that, and its name is Tesla Motors. But looking at the big picture, the electric vehicles that Tesla produces make up just a fraction of the current automotive market. The real barrier to entry for any alternative modes of transportation is a lack of infrastructure, which is why I think the recent rally in ECOtality (NASDAQOTH: ECTYQ  ) is unwarranted.

ECOtality offers EV charging stations under its Blink brand, as well as other EV technologies. Revenue for 2012 jumped 93% for the full year to $54.7 million as it drastically boosted the rollout of its Blink charging stations. However, as you might expect with the rollout of a network of EV charging stations, expenses are rising and the company is still very much in the red. Although its net loss shrank by 67% in 2012, it still lost $0.40 per share.

This is the kind of story that could have merit perhaps a decade from now when EVs play a bigger role on the road. At the moment, with Tesla providing what seems like the only meaningful EV contribution, I can't see there being enough demand to drive ECOtality into the black -- even if it focuses on commercial and industrial customers. Furthermore, ECOtality ended the quarter with only $1.9 million in cash on hand and has consistently delivered negative free cash flow. This is not a recipe for success!

A blast to the past
It's occasionally very difficult to value biotech stocks, because of the wide range of outcomes possible given their pipelines. Other times, as in the case with Regulus Pharmaceuticals (NASDAQ: RGLS  ) , I bang my head against a table and wonder what the heck investors are thinking.

Regulus, which was formed by Alnylam Pharmaceuticals and ISIS Pharmaceuticals in 2007, is a microRNA therapeutics company that has access to approximately 900 oligonucleotide technologies that it can use in its microRNA research. Outside of these patents, Regulus is a ship adrift at sea.

Regulus' entire pipeline as of now is completely pre-clinical, and it likely isn't going to submit an IND to the Food and Drug Administration until next year at the earliest. In addition, one of Regulus' lead drug candidates, which it's collaborating on with GlaxoSmithKline, is an intravenous hepatitis-C vaccine known as miR-122. As Foolish community member zzlangerhans so poignantly put it, "Where has management been for the last five years?" Gilead Sciences and AbbVie's hep-C oral pills are the wave of the future and Regulus is years upon years away from having a viable drug opportunity.

Foolish roundup
This week, it's all about what can you do for me now. Both Regulus and ECOtality have rallied because of their potential, but the actual bottom-line results likely won't be there until the latter half of this decade at the earliest. With regard to Cedar Fair, it's all about the potential for inconsistencies and the multiple factors of its business that it can't control that makes me want to click the "avoid" button.

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?

Will Coca-Cola bubble even higher?
Coca-Cola's wide moat has helped provide its shareholders with superior gains in the past, but the company faces some new threats to its continued market dominance. The Motley Fool recently compiled a premium research report containing everything you need to know about Coca-Cola. If you own or are considering owning shares in the company, you'll want to click here now and get started!


Read/Post Comments (5) | 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.

  • Report this Comment On April 18, 2013, at 3:06 PM, reeshau wrote:

    Sean,

    You lost me when you called FUN a "water park operator." Sure, a seasonal park operator, as most of its parks are in the North. (Knott's Berry Farm is their only park that is year-round) But to ignore the "roller coaster capital of the world" and call it a water park? That smacks of superficial research.

    Also, the debt is from their buyout of Paramount Parks, not ongoing annual investments. In fact, one thing that makes FUN interesting is that their EPS is actually fairly depressed as they amortize more capital expenses from prior years than they are putting in today. Which, in the short term, generates cash. (whether or not they are investing in a sustainable way is the subject of debate)

    I have held FUN since Nov 2009. I am about ready to hand my units back over to income investors. It's too bad that, in my opinion, you are at the right place for the wrong reasons.

  • Report this Comment On April 19, 2013, at 9:11 AM, TheBigPayback wrote:

    An open comment to the Motley Fool: You need to improve your editorial process. Too many times lately, article content is just factually wrong and spreads disinformation to your readership. What's sad is that we're not talking about hard to find information, we're talking about basic information. If you go to cedarfair.com, it would be clear in seconds that the company is more than a "water park" operator.

    Seriously, what's wrong you guys lately? And no attempt to at least correct your articles after they are published?

  • Report this Comment On April 20, 2013, at 12:34 PM, BucknFl wrote:

    Calling FUN a waterpark operator is just blatantly wrong. Was this done deliberately to strengthen your article or was is sloppy basic research?

  • Report this Comment On April 23, 2013, at 10:24 AM, klmdzo wrote:

    Sean,

    You need to get out a spreadsheet or calculator and put the numbers to it and not just regurgitate what you read on the web. Tesla? The Chevy Volt is the number one best car on the road and most affordable. List in one column the cost per month of a gas car and another column the cost per month of the Volt and you will see the cost of the Volt is quite cheaper than any gas car out there and Tesla. Despite the selling price. I think you are just an American car hater. On average Volt owners are getting 130 miles per gallon. With a 9 gallon tank they go approx 1000 miles before fill up and they do two oil changes in 100K miles, no spark plug replacement, Air filters, water service, etc. Get the real facts or get off the internet...

  • Report this Comment On April 25, 2013, at 11:11 PM, jujugun2000 wrote:

    Clearly you only wanted my email address.

    Tesla? What infrastructure deficiencies would that be? No electrical sockets? My company has an entire parking deck devoted to 220 and 120 hookups...this is not the barrier it is battery technology. Tesla rocks! I see this as a break away from the big three and the other big three...you go Elon! This is as cool as it gets and it will sustain.

    Next up...FUN. Water Park, good God man, Motley Fool quality control. Cedar Fair a.k.a Cedar Point is only synonymous with Thrill Park. Are you insane? ANY coaster aficionado would claim this is where it all converges on Coaster Mania. Here is a company that has a passion for thrill rides. Where is the passion in business these days...it's right here at FUN! Sean I suggest you go lose your cookies on Top Thrill Dragster, which really has nothing to do with a water park!

    Sean this is a bad start to equities research.

Add your comment.

DocumentId: 2371007, ~/Articles/ArticleHandler.aspx, 4/18/2014 9:44:52 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