3 Stocks Near 52-Week Highs Worth Selling

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

Mar 6, 2014 at 4:28PM

The beginning of the year swoon has decisively been put in the rearview mirror, with the broad-based S&P 500 launching itself to a new all-time high earlier this week on easing geopolitical fears. 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. Dolby Laboratories (NYSE:DLB), for example, has seen its share price rebound nicely since December despite a first-quarter earnings report that lent to modest declines in revenue and adjusted profit. However, investors aren't too concerned with Dolby's past products so much as its bountiful near-field communication patents. NFC technology uses chips to wirelessly communicate payment information between a mobile device and a point-of-sale device. Adoption has been a bit slow, but it's beginning to gain steam, meaning beefed-up royalty payments are likely headed Dolby's way in coming years.

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

Is this viable?
We've been hearing for years that fuel-cell technology could alter how we generate electricity, but like all new technologies, the question of whether it's a viable long-term solution has come into question.

Fuel-cell system providers have been on fire over the past couple months, with FuelCell Energy (NASDAQ:FCEL) completing the world's largest fuel-cell park in February, and more recently with Plug Power (NASDAQ:PLUG) vaulting higher after announcing the order of 1,738 fuel-cell systems to power forklifts at Wal-Mart's regional warehouses. That deal was a catalyst that pushed Plug Power into the serious contender category and also moved its share price up more than 4,600% from its 52-week low.

Today, I'm suggesting that it could be time to cash in your chips on FuelCell Energy until we see more consistency in its order history and a dramatic improvement in its bottom line.

FuelCell Energy's losses have shrunk in each year since 2008, which is a start. But the company has not delivered a profitable year, or even positive free cash flow, over the past decade. Based on data from Morningstar, FuelCell Energy has had a free cash outflow of $534 million over the past decade as its shares outstanding have nearly quadrupled in order for the company to raise cash for research and development and ongoing losses.

Don't get me wrong -- I'm not invalidating fuel-cell systems, because Plug Power looks as if it's come out of nowhere to lead the pack. However, there are companies positioned to achieve profitability faster than others, and FuelCell Energy simply isn't one of those companies. With few big-name contracts currently under its belt, I'd suggest now could be the perfect time to head for the exit.

IP-Oh no!
One possibly telltale sign that the IPO market is nearing a top is the ability to throw a dart and essentially make a double-digit gain overnight. Perhaps no sector has exhibited this more than biotech IPOs which have almost uniformly ascended to the heavens. One I'd consider parting ways with is Revance Therapeutics (NASDAQ:RVNC) which has basically doubled from its public offering price of $16 in just one month.

Like most IPOs, Revance is looking to raise cash for additional clinical studies, and it does have some intriguing offerings in its pipeline. Revance's possible claim to fame is a topical version of botulinum toxin, dubbed RT001, which you may know better by its shorthand, Botox. The topical therapy is being tested in an ongoing phase 3 trial as a treatment for crow's feet lines; a phase 2 trial for patients with hyperhidrosis, a condition in which a person sweats excessively; and a phase 2 trial for migraine headaches. The allure, of course, would be the topical Botox application, rather than injection, which has obvious convenience and pain benefits.

However, when I look at Revance I note it has just two products in its pipeline: RT001 as described above, and RT002, an injectable botulinum toxin candidate for the more precise and localized treatment of glabellar lines. While I haven't seen negative data on either its migraine or glabellar lines studies, they're both extremely early trials that probably shouldn't even be counted on by investors yet. This pretty much leaves RT001 as the ultimate derivation of its value.

In my opinion, Revance is going to have to hope that RT001 is everything that investors are making it out to be since the company is likely to burn through $100 million in total cash over the next two years via clinical studies -- every dime it just raised through its IPO. Even if RT001 is eventually approved, we're probably looking at three or more years, by my own estimate, before Revance is cash-flow breakeven. While I'm not throwing Revance in the gutter by any means, I'd say investors' expectations have far outpaced reality at its current price, and it'll soon enough be looking to raise additional cash, possibly resulting in a dilutive share offering.

Lights out
I have actually been an avid supporter of GT Advanced Technologies (NASDAQOTH:GTATQ) for more than a year despite the supplier of solar components temporarily ascending to the top of the Nasdaq's list of stocks with the highest amount of short interest.

The thinking behind short-sellers' pessimism had been that China's solar industry was in such dire straits that GT Advanced Technologies, known also as GTAT, would struggle to survive. Being unprofitable, having a glut of supply on the Chinese market, and having tariffs imposed in select countries, the Chinese solar industry seemed headed toward a bad end.

What turned GTAT and the Chinese solar industry around was a pledge by the Chinese government to install 35 gigawatts worth of solar panels by 2015. With many of the country's domestic solar-providers deep in debt, this was one way of ensuring that they would stay busy and perhaps work their way back to profitability. For GTAT, it also meant a surge in orders, as Chinese solar manufacturers reduced their research and development budgets and essentially threw the onus of innovation on GTAT.

While that has worked wonders for GTAT and caused its share price to explode higher by more than 500% over the trailing 52-week period, GTAT is still unprofitable on a trailing basis and valued at 23 times forward earnings.

Despite strong revenue growth potential, GTAT is in a precarious position in China with the government stepping in to support its solar industry. If solar producers do too well they'll simply go back to R&D on their own and cut back on GTAT's solutions. However, even if they do continue to ramp up orders with GTAT, most Chinese solar providers' balance sheets are loaded with debt, making flexibility and expansion difficult, and likely placing an upside ceiling on production capacity. Furthermore, the Chinese government can't support the solar industry by itself, so things could again get choppy for GTAT beyond 2015.

Similar to Revance, I wouldn't consider throwing GTAT in the gutter, but it just doesn't make sense from a valuation standpoint any longer.

3 stocks you'd be foolish to consider selling
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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 recommends Dolby Laboratories. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

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