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3 Stocks Near 52-Week Highs Worth Selling

http://www.fool.com/investing/general/2013/11/21/3-stocks-near-52-week-highs-worth-selling.aspx

Sean Williams
November 21, 2013

The broad-based S&P 500 may be in the midst of a three-day losing streak this week, but that hasn't hurt individual stocks very much, with 49% of all companies in The Motley Fool CAPS database currently 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.

Keep in mind that some companies deserve their current valuations. Health insurer WellPoint (NYSE: WLP), for example, has outperformed its peers of late predominantly because many of the states it offers insurance in under Obamacare are using state-run exchanges, rather than the federally run HealthCare.gov. Although no particular state is doing well, some of the top states for enrollment thus far are ones where WellPoint is a major individual market player. At just 11 times next year's EPS, WellPoint could still have room to run higher, and it could be the most diversified insurer of them all.

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

Nothing goes up forever
As a reminder, not every stock in this series is worth selling because it's a bad company -- sometimes I simply don't agree with the valuation or think it could be a few years before the earnings potential of a company catches up with its current valuation. The company I'm leading off with today, Acadia Healthcare (NASDAQ: ACHC), falls squarely into that category.

Acadia Healthcare is a provider of inpatient psychiatric and chemical-dependency services, operating 50 health care facilities in 22 U.S. states and Puerto Rico. Growth hasn't been an issue recently for Acadia, with revenue growing by 79% in its most recent quarter and adjusted income sprouting by 115%. In addition, whereas many nursing facilities are struggling with a cloudy Medicare reimbursement picture, Acadia's Medicare exposure is fairly low, meaning an expected reduction in government-sponsored payouts won't cripple its business model one bit.

My concern is that Acadia achieved its recent growth primarily through acquisitions. Buying other facilities clearly wasn't a bad move, as you can see by its third-quarter results, but the true organic-growth figure I care about is its same-facility revenue growth (the equivalent of a retailer's same-store sales) of 9.9%. Don't get me wrong -- 9.9% is still impressive, and it was aided by patients staying 8.4% longer and paying slightly more on average. But I have a hard time wrapping my head around Acadia at 63 times trailing earnings and 32 times next year's profits when we're talking about a high-single-digit organic-growth rate.

With no dividend and $581 million in net debt, this is a company I'd much rather avoid until management addresses what I consider to be an above-average debt load and its growth rate catches up to its inflated P/E ratio.

A business model going nowhere
Sometimes being an industry giant is meaningless if the business model offers few pathways for growth. That's why the second company on my chop list this week is outdoor advertising and billboard operator Clear Channel Outdoor (NYSE: CCO).

Although there are hundreds of thousands of billboard advertisements spread across this country, you don't see businesses clamoring to get their names or products in view of the public these days. The reason is that the Internet and television have become considerably more effective for reaching consumers than roadside ads or billboards. The end result has been practically no growth and an inability to stay profitable for Clear Channel Outdoors. In the third quarter, Clear Channel Outdoor reported a 1% decline in revenue domestically and internationally, although it did manage to post a $0.01-per-share profit. Year to date, however, the company has lost $0.18 per share.

Perhaps even more troubling is what I perceive to be mismanagement at the top. In 2012, Clear Channel Outdoor borrowed $2.2 billion (with a "B") in order to pay out a special dividend of $6.08 per share to its parent company, Clear Channel, so that it could help lower its parent's potential debt liability for 2014. The move, which seems to do nothing other than suit the needs of Clear Channel and its current owners at Bain Capital Partners and Thomas H. Lee Partners, has left Clear Channel with more than $4.5 billion in net debt and nearly 15 times more debt than equity, crippling the company's ability to make any sort of strategic moves, should a chance arise.

With little hope for growth and no profitability expected until at least 2015, I would suggest leaving now and not turning back.

Where's the growth?
Last but certainly not least on this week's list of stocks you could sell is specialty chemicals, agrochemicals, and home care products producer Chemtura (NYSE: CHMT).

As its diversified operations would suggest, Chemtura is one of dozens of chemical manufacturers that tend to move in tandem with the economy. When we're in a recession, Chemtura's business tends to head south, and when we're booming, Chemtura's business will shine. Recently, though, the U.S. economy has been trudging slowly higher, yet Chemtura has been misfiring at nearly every step along the way.

In its third-quarter report issued earlier this month, Chemtura was able to deliver a 4% increase in revenue but saw its prior-year profit of $0.22 p