3 Stocks Near 52-Week Highs Worth Selling

With U.S. economic data aligning perfectly with the bullishness of investors, it's no wonder that the broad-based S&P 500 yet again ascended to an all-time high 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 Basic Needs portfolio pick Select Medical (NYSE: SEM  ) . Select Medical is a hospital and outpatient rehabilitation center operator that's benefiting from a better-than-expected surge in Obamacare enrollments as well as years of steady cost cuts. Combined, Select Medical's improved operating efficiency, the potential for increased emergency room visits, and a higher percentage of patients walking through its doors with insurance compared to years past should wind up boosting its profits, and could send this stock even higher -- especially when it carries a $0.40 annual dividend.

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

Someone needs to grill this Pilgrim
Did someone leave the door open? Because it has been a veritable open season for consolidation in the food space over the past couple of weeks!

A little more than two weeks ago meat products giant Hillshire Brands (NYSE: HSH  ) -- which you may know best for its Hillshire Farms, Jimmy Dean, and Ball Park meat products -- made a $4.2 billion offer to acquire frozen foods giant Pinnacle Foods.


Source: Nakeva Corothers, Flickr.

With the courtship just barely getting under way, a white knight emerged earlier this week in the form of Pilgrim's Pride (NASDAQ: PPC  ) , one of the nation's largest poultry providers. The white knight, though, wasn't for Pinnacle, but came in the form of a $6.4 billion bid for Hillshire Brands, as long as it dropped its bid for Pinnacle Foods. The offer represents a roughly 25% premium to Hillshire's closing price over the previous 10-day period, and would value Hillshire at roughly 12.5 times its EBITDA.

While the deal looks like a no-brainer for Hillshire Brands shareholders, and it might knock some value off Pinnacle Foods, I'm left wondering just what in the heck Pilgrim's Pride is thinking with this bid.

On one hand, I fully understand that possible channel-distribution synergies could cut costs significantly over the next two to three years, and an expanded brand-name food lineup will help with pricing power and long-term deal negotiations with restaurants and grocers.

However, there's another side to this coin that could wallop Pilgrim's Pride shareholders. Where is Pilgrim's Pride going to come up with $6.4 billion in cash? As of the latest quarterly figures Pilgrim's Pride had $552 million in cash and $707.4 million in debt. Unless it's going to dilute its shareholders into oblivion, then it's looking at a substantial debt offering. And, on top of that, it'll assume about $553 million in net debt from Hillshire Brands!

Here's where things really get amusing, folks: Pilgrim's Pride actually declared bankruptcy in 2008 because...survey says...it went too deeply into debt acquiring a rival! That's the primary reason why Brazilian firm JBS owns a majority stake in the company now. If Pilgrim's Pride purchases Hillshire, we're simply repeating history once again. It wouldn't take more than a one or two year spike in feed costs for Pilgrim's debt to once again overwhelm the company if the Hillshire Brands offer goes through. 

I'd suggest doing yourself a favor and consider ringing the register on Pilgrim's Pride as fast as you can.

A three-hour TOUR
Someone call Gilligan, the Skipper, and the Professor, because you're going to need them all to navigate yourself away from the bloated China-based IPO known as Tuniu (NASDAQ: TOUR  ) .

The basis of Tuniu's business is, as its ticker symbol would imply, tours! It's an online leisure company that specializes in offering packaged tours, organized tours, and self-guided tours for travelers heading to a number of countries. We've all seen the success of a company like priceline.com in the leisure space, so we understand that carving a niche in the online leisure arena by building up rapport with consumers can be quite lucrative.

For Tuniu, its top-line has grown impressively over the past couple of years. According to its prospectus from early April the company produced about $122.5 million in revenue in 2011; last year, net sales shot up to $322.1 million. While self-guided tours have delivered steady growth, the bread and butter for Tuniu are its organized tours, which comprised 96.5% of its sales in 2013.

While I'm not ignoring the fact that Tuniu's top-line is growing, I'd be remiss if I didn't point out that its meager 8 million share IPO has allowed traders to fuel its share price higher without realizing that in less than six months a number of new shares are going to "flood the market," so to speak.

Moreover, Tuniu's bottom line improvement, or lack thereof, is somewhat disturbing. Despite considerable top-line growth, the company's net losses for 2013 actually grew from $17.2 million in 2012 to $22.3 million. Although part of that can be blamed on increased staffing, a near-doubling in marketing expenses was the primary culprit. In the online world you certainly have to pay to play, and Tuniu's need to develop its brand identity could catapult its costs higher for years to come, practically ensuring that it remains heavily in the red.

In addition, Tuniu's margins are, in my opinion, pitiful. Though they've improved from the 3% reported in 2011, at 6.2% in 2013 the company isn't leaving much room for error. It would also signify that pricing pressure from competitors is readily apparent.

My suggestion would be to stay off this S.S. Minnow and sail away from its recent IPO in a hurry.

Back to the kitchen
I swear I'm not purposely trying to make you hungry, but following our discussion of Hillshire Brands and Pilgrim's Pride, our last castaway this week is restaurant chain Famous Dave's (NASDAQ: DAVE  ) , which is best known for its smoked, barbecued, and grilled meats.

As an occasional customer of Famous Dave's, I have no qualms with the food, the service, or the chain itself. If you're looking for a genuine barbecue experience outside of Texas from a restaurant chain, I'd proclaim Famous Dave's one of your better choices.


Source: Tim Psych, Flickr.

Then again, there are worrisome aspects to Famous Dave's latest quarterly report, which make any additional upside hard to swallow. In the first quarter the restaurant chain reported a sizable jump in net income to $0.07 in EPS from $0.01 in the year-ago period, despite a 2.5% dip in total sales and a 3.3% drop in same-store sales. Part of this can be blamed on the polar vortex, which kept people indoors and away from restaurants in the first quarter. However, Famous Dave's also suffered through a miserable 6.1% decline in same-store sales in Q1 2013, and last year's winter really wasn't that bad. It certainly makes me wonder if the chain is suffering less from the weather and instead from seasonal perceptions, which could keep the company from reaching its full potential year-round.

This concern about seasonality leads to worries that its growth rate, no matter how unique its menu is, won't be strong enough to support its already rich valuation. Total sales are actually expected to fall in 2014 despite aggressive moves from management to reignite growth, which doesn't make much sense with shares up about 100% since their year-to-date lows. If you can justify paying 25 times forward earnings for a restaurant chain with stagnant top-line growth, then be my guest. As for me, Famous Dave's now looks too hot to handle.

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