3 Stocks Near 52-Week Highs Worth Selling

Just when you thought the broad-based S&P 500 was finally going to cool off, we're right back near an all-time record high, with seven-consecutive up days. 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 footwear giant Nike (NYSE: NKE  ) , for example. Its share price hit a new 52-week high this week on news that it would be moving into the Dow Jones Industrial Average, requiring index funds that track the Dow to purchase Nike stock. Even more than that, in the fourth quarter, it reported that future brand orders were up 8% over the previous year. With little signs of slowing growth and a dominant, well-recognized global brand name, Nike deserves every bit of its new 52-week high.

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

Is this stock Finnish-ed?
I admit to being a big supporter of Nokia (NYSE: NOK  ) during its dark days, when few analysts figured it would survive, and most had written off its mobile unit for dead. In July 2012, I broke down Nokia's parts into smaller bits and surveyed their worth, determining that the share price should have been closer to $4 when it was instead trading around $2.

Since that article more than a year ago, Nokia purchased the full rights to its previously shared networking solutions joint venture with Siemens, and sold off its mobile units, comprised of its Lumia smartphones, to Microsoft for $7.2 billion. The move made sense for both parties, since Microsoft already had an operating system partnership with Nokia for the Lumia, and is desperately trying to diversify its revenue stream beyond PC operating systems, and Nokia, frankly, needed the cash! However, at nearly $6 per share, I feel Nokia's run may be coming to an end.

Let's look at it this way: On the bright side, Nokia received a gigantic cash infusion, which will support R&D for years to come, and give it some downside protection. On the other hand, although a boom is coming in networking equipment, Nokia's really not in any shape to take advantage of it. Even if it were, the 53% gain the stock has experienced since announcing the sale of its smartphone unit to Microsoft more than accounts for what strength its networking solutions unit might encounter as wireless service provider infrastructure spending trickles its way down the line.

Obviously, getting back to profitability will be a key for Nokia, and I do believe it eventually can be profitable again. Although, at 40 times next year's projected profits, I feel now is not the time to be chasing this stock higher, and would stick to the sidelines until it proves otherwise.

A spliced budget
This one is a bit of a tough call because I like the stock and its technology, but it's also a great reminder never to fall in love with a company. The company in question that's on the hot seat this week is life science tools and systems maker Illumina (NASDAQ: ILMN  ) .

On the grand scale, Illumina offers a very intriguing business model. The company's genetic and biologic analysis tools are a smart choice for an aging baby-boomer population when it comes to analyzing diseases and disorders, and mapping out personalized treatment plans for these individuals. It's no secret that our baby-boomer population is going to boost health-care spending dramatically, making Illumina a company that should benefit in a big way, perhaps five to 20 years down the road.

In the meantime, though, Illumina could face a bigger challenge. Like its primary rival Life Technologies, Illumina relies on hospitals, universities, and independent laboratories to buy its genetic analysis tools. Unfortunately, these are the same institutions that rely on government grants to help fund a portion of their research. If you hadn't noticed, with the sequester automatically kicking in, the Federal budget has needed to be reduced by $85 billion. Among the areas that could see these cuts are medical-research programs. So, while growth may continue for Illumina, the magnitude of its growth over the coming two-to-five years may be slower than many investors are accounting for as the U.S. government does its best to pare back its deficit.

At a forward P/E of 41, and at nearly eight times sales, I just don't see where investors have left room for any more value to be squeezed out of this stock, and would suggest you pass on the company here.

Home is where the short-seller is
There's little denying that banking stocks are fickle, and that they often follow the path of the economy. However, I hold pretty true to the old adage on Wall Street that you buy banks when they're notably below book value, and you sell them when they top two times their book value. It's not a perfect science by any means, but it helps to weed out undervalued and overvalued banks from the crowd. Joining Nokia and Illumina in the "sell" column this week is Arkansas Home BancShares (NASDAQ: HOMB  ) .

I will give it to shareholders that they have a lot to be excited about right now, with their company purchasing Liberty BancShares for what amounts to $30 million in cash, and $250 million in Home BancShares' stock. The merger will boost Home's deposit market share and make it the second-largest holding bank based in Arkansas.

With that merger, I'd expect that its price-to-book-value will dip a bit, as well. But, at a current P/B of nearly three, and a forward P/E of 17, I'd have to say that emotions are getting the better of sensible investing lately.

In the second quarter, Home BancShares did deliver great news: It provided an average return on assets of 1.71%, and a 53-basis-point boost in net interest margin that'd make most banks drool with envy. But, at least some of those gains are one time in nature, and relate to additional yield received from FDIC loss-sharing loans. Looking ahead, I see some very difficult year-over-year comparisons for Home BancShares, especially as interest rates rise and consumer loans dry up (mortgage lending income accounted for 16% of all non-interest income), and would suggest investors look for more intriguing values in the banking industry.

Foolish roundup
This week, it's all about good companies that are being pumped higher by emotional investing rather than disciplined investing. Nokia's smartphone unit sale has spurred buying, but it doesn't have any near-term catalysts left on the horizon. For Illumina, cheaper genomic tests will certainly help boost sales, but, at the same time, a shrinking federal budget will weigh on medical grants and hurt its top-line growth. And finally, for Home BancShares, which has shown that it can grow rapidly through acquisitions, it'll need to demonstrate to shareholders that it can meet or beat its previous quarters on an organic basis if it hopes to maintain its lofty price-to-book ratio.

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 (6) | Recommend This Article (4)

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  • Report this Comment On September 12, 2013, at 9:02 PM, ScottAtlanta wrote:

    I think you're off on ILMN. I think it's wise to consider when to sell, but....

    "5 to 20 years.."? Genetic testing and matching for meds for example is happening now and expanding in short order. That's now. Not 5 - 20 years. So, although the price is high...the area is HIGH growth and ILMN is the leader. You can sell now and buy back at higher price. If 5 to 20 was accurate, I'd agree but tech changes are occurring exponentially, not linearly as they have appeared to do so in the past. Consult the graph recently presented at the Apple presentation that shows the processing power of the iphone on an exponential curve. All tech....all that can be digitized is on this curve....I keep trying to remind myself of this...but we've been on the slow growth part of this curve for so long we predict in linear rates (5 - 20 years). As Kurzweil, lead engineer at Google, notes...we're now on the "knee of the curve..."

    I don't sell ILMN b/c I think it's a 100B market cap co., in the next 5 years (?), barring losing to competition which it has not done thus far. How's that for an outlandish prediction?! Okay, maybe 80 B?

  • Report this Comment On September 12, 2013, at 10:48 PM, TechTime wrote:

    You said nothing about the deals that are being made with HERE and NSN is ready to take care of any networking business that comes it's way.

  • Report this Comment On September 13, 2013, at 8:49 AM, Walter118 wrote:

    Your analyses is not only shallow but also hollow. Simply worthless and misleading in your recommendation regarding Nokia stock. You either completely disregarded or are unaware of Here potential, incredible and still uncovered huge value and income generating ability of IP (intellectual properties, patents) and NSN. My grade +D.

  • Report this Comment On September 13, 2013, at 8:52 AM, lee654 wrote:

    I disagree with sitting on the sidelines. I think all their divisions will knock it out of the park, Home Run! I am long and shall continue accumulating. Their patents are extremely valuable in the billions and they will prove this through the years ahead. Their engineers are leaders in their fields of technology. I think by the year 2017 they could be # 1 with smartphones and mobile devices. Nokia will see $50 a share in the future. The best to all, take it one day at a time. LS

  • Report this Comment On September 13, 2013, at 9:14 AM, robmxa wrote:

    Now that the incredible negative weight of the cell phone business has been lifted from Nokia the incredible POSITIVE potential of its remaining assets can shine.

    Here for one has been evaluated at zero by many but was being sucked by devices to shore that division up. Now we can see its value more clearly. MS is paying $330M per year for Here. What if Apple and Samsung now license Here for same or more? Apple needs Here and Samsung should want to distance itself from Google. Besides Here is the best mapping out there.

    NSN is going to clean up infrastructure after buying up some much needed software. Iexpect to see them win big now that the cloud of BK is removed. Think they were denied a much bigger win in China recently because of BK worries. Major wins coming over next 24 months.

    Patents. Nokia will be a major winner with their patent portfolio. We may see Android users lining up to get a deal sans a legal wrangling.

    We may see a licensing of 41MP camera tech to Apple and Android users though this is a bit cloudy as to the deal with MS.

    As investors go from the super neg on NOK to the positive the swing could even get a little out of control like $20-$30 per share in the next year.

  • Report this Comment On September 13, 2013, at 10:59 AM, TechTime wrote:

    Click bait!

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