3 Stocks Near 52-Week Highs Worth Selling

Whether or not "sell in May and walk away" will play out this year remains to be seen as the S&P 500 rallied to a new all-time record high to begin this week. 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 Waste Management (NYSE: WM  ) , for instance, which has rallied ever since reporting its first-quarter results last week. The company's internal revenue growth from yield for its collection and disposal operations came in at a two-year high, 1.4%, and the company modestly improved its adjusted year-over-year EPS. Trash disposal and recycling are necessity businesses and make Waste Management a solid long-term buy.

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

Time to make the switch
If I could name a sector that I'd certainly tread lightly around considering that consumers are tightening their wallets, it would be the casino sector. Casino companies rely on loose wallets and vacations to drive profits. This is why I feel it could be the time to say goodbye to casino and race track operator Pinnacle Entertainment (NYSE: PNK  ) near its 52-week high.

Pinnacle's first-quarter report, announced yesterday, wasn't as bad as many had projected, with the company's loss smaller than expected despite higher taxes and delayed tax refunds biting into consumers' pockets. However, what bothers me most about smaller casino operators like Pinnacle Entertainment is that they are completely dependent on consumer spending in the U.S. -- and it has been years since the gaming industry in the U.S. has shown any signs of life.

Instead of purchasing Pinnacle, which carries a debt-to-equity in excess of 300%, doesn't pay a dividend, and is valued at 21 times forward earnings despite a revenue growth rate of just 7%, I'd recommend swapping it out for Las Vegas Sands (NYSE: LVS  ) . With Las Vegas Sands, you get U.S. exposure, but you also get rapidly growing exposure to Macau, where Sands' casino and resorts are catering to a wide swath of income levels. You also get a 2.5% yield with Las Vegas Sands and a lower forward P/E ratio with a much quicker revenue growth rate.

Insurance I wouldn't touch
Let me preface this by saying that I agree with most analyst assessments that the mortgage insurance sector is improving. Legacy defaults from the financial crisis are slowly working their way off many insurers' books and liquidity for many mortgage insurers is improving. However, I can't really say the same for MGIC Investment, which I added to my short-list a few weeks ago. This week, I'm also going to add its peer Radian Group (NYSE: RDN  ) to that list after an abysmal first-quarter report.

For the quarter, which was reported yesterday, Radian saw its losses widen to a whopping $1.30 per share as a fair value derivative change walloped reduced earnings by $173.3 million. Radian did write $10.9 billion in new mortgage insurance and improved its risk-to-capital ratio to 18.6, but it still can't turn an annual profit. I firmly believe that Wall Street analysts were a bit premature in their call that the mortgage insurance sector is healthy -- especially with regard to MGIC and Radian, which have both had incredible runs yet continue to report steady losses.

Until I see steady profits and significantly lower risk-to-capital ratios, I'm going to avoid the mortgage insurance sector like the plague.

The waiting game
The tables are clearly stacked against small biotech companies developing cancer drugs. History has shown that few (if any) have successfully had the Food and Drug Administration approve a late-stage cancer drug. While mid-stage trials of Galena Biopharma's (NASDAQ: GALE  ) HER2-targeting breast cancer vaccine have been promising thus far, the chances of an approval seem a long way off.

In phase 1/2 trials the recurrence rate was reduced to just 5.6% in the NeuVax arm compared to a 25.9% recurrence rate in the control arm after a 60-month period. However, the split patient pool for these vaccines was relatively small (187 people) and it will take an additional three years to determine whether NeuVax meets its primary endpoint of disease-free survival once the phase 3 study is full. Including an FDA panel review and FDA PDUFA decision, we could be looking at 2017 before NeuVax even has the slightest chance at hitting the market. 

Also, nearly Galena's entire pipeline is made up of some trial involving NeuVax, so a failure here could be a potentially big blow to shareholder confidence. This is a situation where I'd like to believe NeuVax could succeed, but there are viable reasons -- and a three-year wait -- to believe that this valuation is far from deserved.

Foolish roundup
This week's theme is all about keeping investors' expectations in check. Pinnacle's reliance on the domestic gambling industry, Radian's mounting losses from its legacy mortgage loans, and having history stacked against Galena make all three potential underperformers.

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?

Is this necessity business still a buy?
Waste Management has been a longtime favorite for dividend seekers everywhere, but the share price performance over the last few years has left many investors wanting. If you're wondering whether this dividend dynamo is a buy today, you should read The Motley Fool's premium analyst report on the company today. Just click here now for access.


Read/Post Comments (15) | Recommend This Article (8)

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 May 02, 2013, at 2:18 PM, JF125780 wrote:

    A very informative article.

    LVS is a strong company plus a top of the line growth company.

    Once they get rid of the law suits hanging over them, you will see even more $

    Danny Kowkabany

  • Report this Comment On May 02, 2013, at 3:37 PM, bigmac7406 wrote:

    A Motley Fool article 2 days ago praised GALE and now this article come out and causes a sell off. I subscribed to Motley to get the stock tip of the century which was to buy AAPL. AALP subsequently went down 33%.

    Oh well, I feel certain that GALE will survive this writer. I just wish I had more funds available buy GALE at this discounted price.

  • Report this Comment On May 02, 2013, at 3:52 PM, imanewman wrote:

    GALE's run has come to an end. I think all is not as it seems with NeuVax... I believe that things are looking doubtful and I wouldn't be surprised if the data yields less-than-adequate results when all is said and done.

    Alas, this stock will crash when results are announced. Avoid getting caught in this collapse. Sell.

  • Report this Comment On May 02, 2013, at 4:09 PM, jdcarbon wrote:

    Two days ago, the fool ran an article recommending taking a strong look at buying GALE - what gives? This is why I would never rely on anything printed by this joker of a site! aptly name - Motley "Fool"!!

  • Report this Comment On May 02, 2013, at 4:34 PM, GoLong17 wrote:

    If you click on Sean Williams name on the top of the screen, you would see he's some young wannabe trader that has NO CLUE what he's talking about. In fact all of these motley fool writers look like they're about 2 years removed from high school. The fact is that I know GALE is a strong buy. Just because some young kid with a goatee says a stock is going to fall, doesnt mean its a bad stock. You sheeple follow these young clueless kids. Look at his credentials and make your own decisions.

  • Report this Comment On May 02, 2013, at 4:48 PM, bigmac7406 wrote:

    To quote from an article in Motley Fool

    "2 Biopharmaceutical Companies Worth Buying

    By Mohsin Saeed - April 29, 2013| "

    "Galena and Gilead are both strong buys at these levels. Galena has more upside potential because it is an attractive takeover target at these levels. The company will be an ideal fit for AstraZeneca because it is available at pretty cheap valuations, and also because it falls into one the three focus areas, Oncology."

    What I take issue with is the constant pumping of galena in the forums, including this one, that drives the price per share up temporarily, only for the impending fall that leaves someone holding the bag. It appears orchestrated.

    We will have to see how things go NeuVax.

  • Report this Comment On May 02, 2013, at 5:11 PM, BooDog2 wrote:

    3 Stocks Near 52-Week Highs Worth Selling3 hours ago – The Motley Fool

    2 Biopharmaceutical Companies Worth BuyingApril 29, 2013 – Blogs @ The Motley Fool

    Wow. Guess the first lesson would be in technicals. GALE broke its 52wk high and was considered to be a break out stock.

    Ever hear of a break out before Sean? Only the fundamentals would allow it to push the way it did.

  • Report this Comment On May 02, 2013, at 5:17 PM, BooDog2 wrote:
  • Report this Comment On May 02, 2013, at 5:28 PM, mbates50 wrote:

    All I can say is, I remember Adam Fruenstein phoo-phooed Arena. Went from $1.50 to $13. Maybe he and Sean are related

  • Report this Comment On May 02, 2013, at 6:41 PM, mbates50 wrote:

    Oh, and BTW. Check out his accurracy rating.49% and his Fool score is -249. Oops...

  • Report this Comment On May 02, 2013, at 9:22 PM, steigen88 wrote:

    This was a great hit job on GALE! I've already made a boatload. Maybe you should educate us all on biotech investing! Tell us about "Risks and Rewards"!!

  • Report this Comment On May 02, 2013, at 9:32 PM, steigen88 wrote:

    Word has it that our hometown Boston billionaires Wellington has committed a significant non-active stake in GALE. Hey Sean, nice work!

  • Report this Comment On May 02, 2013, at 9:35 PM, gcialini wrote:

    Well, Sean....while you were correct on the horrid 1Q of RDN....the market thought otherwise....up almost %4 today.....

  • Report this Comment On May 02, 2013, at 9:47 PM, DrGoldin wrote:

    @GoLong17: If you look at Sean Williams's record of buy and sell calls while you're checking out his goatee, you'll see that he does better than the overwhelming majority of fancy analysts. I don't really care whether the information comes from someone with a goatee; if it's useful information, I'm going to listen.

  • Report this Comment On May 03, 2013, at 3:18 AM, SonsofItaly wrote:

    GALE:

    1) Efficacy and Safety Study of NeuVax(TM)(Nelipepimut-S or E75).....................Estimated Primary Completion Date: May 2015 (Final data collection date for primary outcome measure)

    http://clinicaltrials.gov/ct2/show/study/NCT01479244?term=ga...

    2)"The market is closely paying attention to any news related to the Phase III trial, which is currently enrolling patients in more than 100 clinical sites worldwide, and there are two milestones coming up that could serve as catalysts for the shares."

    http://seekingalpha.com/article/1328431-galena-pharma-high-h...

    3)Galena Biopharma Acquires Abstral(R) (fentanyl) Sublingual Tablets in U.S., a Novel, Best-in-Class Treatment Approved for Breakthrough Cancer Pain

    http://investors.galenabiopharma.com/releasedetail.cfm?Relea...

    4)William L. Ashton Joins Galena Biopharma's Board of Directors...........who is listed in Forbes as having worked as a director at Sucampo Pharmaceuticals and has also worked under several titles for Amgen Pharmaceuticals.

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