3 Stocks Near 52-Week Highs Worth Selling

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

May 15, 2014 at 1:45PM

Maybe short-sellers should consider calling in the Big Bad Wolf, because all their huffing and puffing has been for naught, with the broad-based S&P 500 touching the 1,900 point-mark for the first time in its history earlier 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 valuations. Take satellite TV company DIRECTV (NASDAQ:DTV), which has spiked recently on the notion that AT&T could be preparing to make a bid of up to $50 billion for the company. Spectrum is of the utmost importance to large telecom service providers these days, but so are cost savings from combining similar businesses. Even if this deal doesn't materialize, DIRECTV's minuscule forward P/E of 13 looks enticing enough to carry the company higher. Its churn rate in the first-quarter within the U.S. was identical to the prior year quarter's at 1.45%, and average revenue per user increased 4.3% (also within the U.S.). With 38 million-plus subscribers now it's safe to say this household name isn't going anywhere anytime soon, and that could lead to more upside in its share price. 

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

Now what?
No matter how much you like a company, sometimes you have to come to terms with the fact that it's no longer the growth story it once was. That's why I'm going to start us off by suggesting it's time to part ways with OEM equipment and components supplier Flextronics (NASDAQ:FLEX).

Are there redeeming qualities to Flextronics? You bet! In fact, the company has vaulted past Wall Street's estimates in eight of the past nine quarters while meeting expectations in one (Q4 2012). In its fourth-quarter results Flextronics pointed to strength in its gaming division as well as smartphone sales to explain why it was able to topple Wall Street's estimates once again.

However, I look at this report as sort of a plateau of Flextronics, which is already in a highly cyclical business, and I'm left asking "now what?"


Source: GaboGames, Flickr.

While the company did benefit from manufacturing the Xbox One and has seen a steady increase in demand for Google smartphone production, a number of uncertainties remain going forward. For one, it took Microsoft eight years to introduce a new gaming console, so the expectation is that gaming revenue is only going to dip in the coming quarters for Flextronics. Similarly, Google's sale of its Motorola handset unit clouds Flextronics' role in their manufacture going forward.

While Flextronics is decisively inexpensive at less than nine times forward earnings, it's also sporting about $510 million in net debt, pays no dividend, and, due to its highly cyclical business, is looking at revenue growth of perhaps less than 1% this year.

In other words, I like the business model, and I think Flextronics is doing a valiant job controlling its costs, but I just don't see how it's going to create new business or squeeze out more impressive margins than we're already seeing. I believe investors should consider taking these recent gains and heading for the exit.

I'm not buying what they're selling!
I'd be lying if I said there aren't some business models which I'm simply opposed to investing in. One of those models is the advertising sector, which is intricately tied to the health of the overall economy and needs to remain completely fluid if it's to succeed.

The company I'd suggest keeping your distance from is recent CBS spinoff CBS Outdoor Americas (NASDAQ:CBSO) which is comprised of the company's static and digital billboard assets. The goal of CBS Outdoor Americas is to give income investors a chance to benefit from what could be the steady cash flow of the advertising business and collect a yield that has the opportunity to approach 5%. As a real estate investment trust, CBS Outdoor receives welcome tax benefits in exchange for paying out 90% or more of its profits to shareholders in the form of a dividend.

Bulletin Board
Source: CBS Outdoor.

But I would suggest that this lure isn't nearly enough to attract long-term investors to this dying sector. Although CBS Outdoor is in the process of transitioning static billboards to digital billboards, this is a long and costly project. The point being, it could be years before investors see a differentiable bottom-line benefit from CBS Outdoors' move to digital billboards.

As further evidence of CBS Outdoors' unexciting growth prospects, I'd point you toward the company's first-quarter results. On a constant currency basis net income soared from $5 million to $8.4 million, while funds from operations (the most critical component for any REIT) jumped modestly by $2.4 million to $47.9 million. However, since we don't live in a perfect world and foreign currency translation does factor into a company's results we should note that net income plunged 58% to $8.4 million, and FFO slipped $6.8 million to $50.3 million if we don't adjust these figures. If you butter up CBS Outdoors' figures enough it can look decent to any income investors, but its results aren't fooling me.

If you're stuck on the idea of investing in advertising stocks, look for opportunities on the Internet and avoid digital and static billboard operators, as the industry is completely at the mercy of the U.S. economy and is a high-investment, low-return type business model.

Just treading water
There are a lot of sectors that on paper look as if they could provide plenty of growth opportunities over the long run. In general, medical device makers, even with the 2.3% medical device excise tax, should see a rise in top-line production as the baby boomer population ages and as Obamacare makes medical care easier to access for the general population.

Yet, like always, not all companies can be played by the book. Take CONMED (NASDAQ:CNMD), a manufacturer of minimally invasive surgical devices and equipment used by physicians and surgeons within the U.S. Let's be clear that CONMED's results haven't been terrible by any means. Its first-quarter results demonstrated a nearly 9% increase in year-over-year adjusted EPS as adjusted EBITDA margin grew 120 basis points to 18.3% of sales. CONMED also reiterated its full-year guidance.

However, if you're thinking CONMED is a high-growth stock based on its strong rally since September you'd be sorely mistaken. Year-over-year revenue actually fell just shy of 3% in the latest quarter as the company continues to execute a restructuring and trim costs as necessary to improve its operating efficiency (thus the higher adjusted EBITDA).

What I find more concerning is the fact that CONMED's expected growth this year and next year is only expect to be in the very low single-digits despite the introduction of new devices and in-roads into new markets, especially in Europe. Innovation is what drives the medical device sector, and if CONMED is only able to stay afloat on the top-line with new devices, yet is currently trading at a forward P/E of 23, that's a bit worrisome.

As I've mentioned previously, sometimes it's not about selling bad companies but merely letting the fully valued ones go. This is a case where CONMED looks fully valued here, and I'd suggest you could do much better by putting your money to work elsewhere within the sector.

The $14.4 trillion revolution you'd be foolish to bet against
Let's face it: Every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in explosive lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 trillion industry. Click here to get the full story for free in this eye-opening report.

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 owns shares of, and recommends Google (A shares), Google (C shares), and Amazon.com. .It also owns shares of Microsoft, and recommends DIRECTV. 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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