3 Stocks Near 52-Week Highs Worth Selling

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

Jul 3, 2014 at 1:45PM

If you needed any indications that the stock market has been unstoppable over the past five years, here's another: just shy of half of the approximately 4,700 stocks in The Motley Fool CAPS Screener database are trading at or within 10% of a new 52-week high. For skeptics like me, that's an opportunity to see whether companies have earned their current valuations.


Source: Ryan McFarland, Flickr

Keep in mind that some companies deserve their valuations. Take Enterprise Products Partners (NYSE:EPD), the nation's largest midstream provider, as a great example. While commodity pricing and weather concerns will always lend to some degree of skepticism about pipeline stocks, Enterprises' greatest advantage is the fact that investing in our pipeline infrastructure is a necessity. New shale finds both on land and offshore, coupled with growing global energy demands, are only going to put middlemen like Enterprise which transport and store energy assets in the forefront. This is not the type of company short-sellers want to stand in the way of.

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

What's on your plate?
Consolidation in the cable service space has everyone on the edge of their seat lately. Comcast buying Time Warner Cable and AT&T gobbling up DIRECTV will create two cable behemoths that consumers worry will reduce competition. More than that, it leaves poor DISH Network (NASDAQ:DISH) on the outside looking in. These two megamergers have pushed DISH to pump out innovative new ideas that'll help jump-start its growth.

Recently, the satellite service provider announced it'll be the first to offer a legal Internet pay TV service. If you recall, Aereo was deemed by the Supreme Court to be operating illegally given that it didn't share licensing fees with broadcasting networks. DISH is doing things the right way and could benefit from its first-in-class move.

In addition, DISH also introduced a wireless set-top box. The hope here would be that consumers would appreciate the lack of wires, which it's been heavily touting in its advertising campaigns, and switch based on that convenience.

Source: DISH Network

Yet, for all of these positives, one concern remains: a lack of genuine subscriber growth. Even with its churn rate dropping 5 basis points to 1.42% in the first quarter, DISH was only able to add 40,000 net subscribers to 14.097 million. The only way DISH has been able to maintain profits lately has been through price increases, with the average revenue per user jumping to $82.36 this past quarter from $78.44. Modeled as the low-cost leader next to DIRECTV, if DiSH is forced to continue raising prices it'll lose the primary pricing edge it holds over its primary competitor.

If stagnant subscriber statistics weren't a big enough concern, DISH's valuation is an even larger problem. Despite new product introductions, DISH's long-term growth rate is probably around 5%, give or take a percent or two depending on the U.S. economy. Yet, DISH is currently valued at 33 times next year's earnings, pumped up by some wild speculation that it still might be a takeover target. With little in the way of growth and no dividend there's just little blood left for investors to squeeze out of this turnip. I'd suggest investors look elsewhere for a compelling valuation in the cable service sector.

Not "fixed" yet
If you look up "inconsistent" in the dictionary, you just might find a description of Orthofix International (NASDAQ:OFIX) there, a supplier and developer of medical devices and orthopedic products used most commonly in spinal fusion processes or for bone regenerative purposes.

In 2012, Orthofix sold off its sports-medicine unit for $157.5 million so it could instead focus solely on its spinal and bone regenerative product line.

Source: Orthofix International

Since then it's been orchestrating a seemingly endless turnaround that's moved forward literally an inch at a time. With the introduction of the Affordable Care Act in the U.S., medical device makers have struggled with the 2.3% medical device excise tax, as well as insurers and patients who've been less likely to undergo surgeries deemed elective. The end result has been generally flat sales growth for Orthofix and a series of on again, off again full-year losses.

Of late, though, Orthofix shares have soared, primarily because of the address on the front door of its headquarters. Based out of the Netherlands, Orthofix could offer a larger medical device company in the U.S. an easy way to escape corporate taxes that can hit 40% on the high end. With a top marginal corporate tax rate of just 25% in the Netherlands, a larger device company could save millions by purchasing Orthofix. In response, shares have rallied about 80% in just five months.

As you might imagine, I don't believe this move is justified given the current growth potential for spinal products. While this might appear to be an area of high growth on paper, an ACA-induced procedure drop coupled with a growth rate in the low-to-mid single-digits simply doesn't correlate with its forward P/E of 25. Essentially, investors here are simply banking on a buyout for a company that's not expected to grow at a quick pace and has proven to be historically inconsistent. Exactly how much of a premium should these investors really expect?

My belief is that Orthofix shares are already fully valued and that investors wanting to take advantage of the medical device market have plenty of other paths they can take with stronger growth prospects and a considerably more reasonable valuation.

Printing a fairy tale ending
Sometimes with this series I have to suggest companies whose products I like and use that could head lower -- this is one of those instances. The last company up this week that you may want to part ways with is printing services and enterprise software specialist Lexmark International (NYSE:LXK).


Source: Sir Adavis, Flickr

Lexmark is currently undertaking a mammoth restructuring campaign meant to put its inkjet printer and hardware business in the rearview mirror in favor of its managed print service and software portfolio. In the first quarter Lexmark noted that its managed print and software segments combined for 18% year-over-year growth and now account for 28% of total revenue, up from 23% in the year-ago period.

The company also recently announced a 20% dividend hike in an effort to reward shareholders who've stuck with Lexmark during its turnaround campaign, and also to demonstrate that its cash flow is strong enough to pass along additional perks to shareholders. The current yield of 3.2% is certainly substantial given how pitifully low yields are for CDs and most bonds.

But Lexmark's push into enterprise software isn't just a "Wham. Bam. Done!" type of shift. This is a multiyear product line shift that involves forging new customer relationships in an area where it wasn't a powerhouse previously. In other words there are likely to be hiccups along the way regardless of what its current growth rate might signify.

Also consider that its hardware and legacy printer business are going to continue to drag down whatever positives might be produced from the printing service and software segments. Hardware revenue fell 8% last quarter while total supplies dipped by 1% year-over-year. This legacy business is added weight that's likely to act as a drag for years to come.

Investors would certainly appear to believe that Lexmark has turned the corner given that shares are up around 150% since mid-July 2012, but a closer look at its top-line reveals that sales decline are expected throughout the next couple of years. The real reason Lexmark has rebounded is tight cost cutting. But cost-cutting is only a temporary solution to a long-term problem.

Until I see growth from Lexmark's top line and a concrete evidence of its ability to forge lasting enterprise partnerships I'd suggest watching this stock from afar.

These 3 stocks could have room to fall, but this darling stock of Warren Buffett could be set to soar!
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour (That's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new free Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

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 Enterprise Products Partners. 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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