3 Stocks Near 52-Week Highs Worth Selling

Are these three stocks sells or belles? You be the judge!

Feb 20, 2014 at 4:25PM

Feel free to log our early-2014 "correction" as a distant memory, because the broad-based S&P 500 is once again within striking distance of another all-time closing 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. Auto parts company Genuine Parts (NYSE:GPC), which you may know best by its NAPA brand, tipped the scales at a fresh 52-week high this week after the company announced its 58th consecutive annual dividend increase and reported full-year results in which its revenue grew 8% and its profits jumped 6%. Despite challenging market conditions in its highly cyclical and somewhat commoditized office products and electronic segments, the resurgence in auto sales continues to provide a positive long-term outlook for Genuine Parts.

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

Not so Nimble after all
I've harped on it time and again, but investors' willingness to give IPOs and data center stocks a free pass has simply gone too far. Up first on the possible "sell" docket this week is flash-optimized hybrid-storage platform Nimble Storage (NYSE:NMBL).

All things considered, Nimble has a lot going for it after debuting just two months ago. Nimble priced its IPO at a mere $21, closed its first day of trading near $34, and has since risen past the $50 per share mark. Growth is certainly not an issue with Wall Street calling for 56% top-line growth in 2015 as enterprise customers look for ways to store data more efficiently in data centers for as little cost as possible. Nimble's hybrid platform is incredibly fast, easily scalable, and relatively inexpensive compared to the current standard found in big data centers.

The concern I have with Nimble Storage is that the company is paying little credence to profitability at the moment and is throwing millions of dollars into research and development, as well as marketing expenses. While its customer base has impressively jumped from around 110 in July 2011 to approximately 1,750 in July 2013, its R&D expenses have basically doubled in successive years, with sales and marketing expenses exploding higher from $2.9 million in 2011 to $39.9 million in 2013. Per the company's S-1 prospectus, "We anticipate that our operating expenses will increase in the foreseeable future as we continue to develop our technology, enhance our product and service offerings, expand our sales channels, expand our operations and hire additional employees." 

I fully understand the need to pay for growth in the early going, but investors don't seem to understand that losses for Nimble Storage may continue for another two or three years as it grows its workforce and builds up trust in its next-generation disruptive storage product. There's little question in my mind that the growth is there, but at 19 times 2015's aggressive sales growth forecast, and with hefty losses still expected, I'm not pegging Nimble for much additional share price upside.

Masking tepid growth
I'm always skeptical of huge rallies, and one of the reasons I've been particularly skeptical of the broad-market rally in the S&P 500, is that a number of companies have been turning to cost-cutting measures and share repurchases to boost EPS and mask a lack of genuine organic growth. Another offender I've decided to add to this growing list this week in China Biologic Products (NASDAQ:CBPO).

In terms of region and product, China Biologic Products represents an intriguing investment opportunity. China is growing at a considerably brisker pace than the U.S., and the company develops plasma-based pharmaceutical products, giving it a niche product with relatively little competition.

However, China Biologic Products' last quarterly report certainly wasn't anything to write home about. In the third quarter, the company did deliver a 13% increase in operating income as EPS advanced 6% to $0.53, but that was primarily because it cut its total operating expenses by 19% and repurchased 1.48 million shares of its common stock, or 5.5% of its outstanding shares. Having few shares outstanding does theoretically boost EPS, but it also helps to distract investors from a lack of top-line growth.

Also during the quarter, we saw a revenue increase of just $0.1 million to $53.2 million. I'll give China Biologic Products the benefit of the doubt as its Guizhou production facility has been offline for upgrades since June and is unlikely to come back online until the first half of this year. Yet, even excluding this one-time closure, the company is likely on track for a decline in revenue moving forward, to what I suspect will be a 5%-7% growth rate. While not horrible by any means, it's a bit much to pay for a company valued at 15 times forward earnings that chose to repurchase shares rather than pay shareholders a dividend.

Until I see definitive top-line improvement, I'd suggest sticking to the sidelines.

"Kiss" this stock goodbye
With Valentine's Day having come and gone, it's time to put those heart-shaped chocolate boxes back on the shelf for another year, which gives me all the more reason to voice my personal displeasure at confectioner Hershey's (NYSE:HSY) current valuation.

Like the previous companies, Hershey has a number of factors working in its favor. Obviously, we just got through Valentine's Day, which is a bread-and-butter event for the producer of sweets. Also, Hershey boasts incredible brand power. It doesn't need to do much in the way of advertising since it's practically a household name when it comes to sweets, affording it the ability to cut costs through lower marketing expenses, and also allowing it to keep its prices above its peers in many cases.

But, here's the concern I have with Hershey: Cocoa prices are rising, and its top line isn't. Dark chocolate demand has been on the rise around the globe, and cocoa is in short supply, which has pushed the price per ton of cocoa from $2,150 in March of last year to $2,967 for the May 2014 contract. That enormous jump means higher prices for consumers at a time when retail spending is still iffy at best, and it means higher input costs for Hershey.

As I said above, Hershey's brand name affords it the ability to pass along higher costs. These price increases have delivered sales growth of 6%-7% on an annual basis. However, Hershey is currently valued at a frothy 23 times forward earnings and nearly 15 times book value. If the company paid out a premium dividend, I could see dealing with this lofty valuation, but Hershey's current yield is less than 2% annually.

Unless we see a surge in Hershey's bottom-line growth, I'd suggest avoiding this sugar-induced high.

The No. 1 Way to Lose Your Wealth Without Even Knowing It
You’ve fought hard to build wealth for you and your family. Yet one all-too-common pitfall could completely derail your dreams before you even know it. That's why a company The Economist hails as "an ethical oasis" has isolated five simple questions you must answer to ensure that your financial future is really secure.

Can you answer YES to all five of these eye-opening questions?
Click here to find out -- before it’s too late!

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool has no position in any companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers