Yesterday, we may have witnessed the beginning of the first sizable correction in the stock market since July. Nothing can go straight up, but for bulls, these rallies may seem like a dream come true. For skeptics like me, they're opportunities to see whether companies trading near their 52-week highs really deserve their current valuations.
Keep in mind that some companies deserve their lofty prices. Shares of Semtech
Pork producer Smithfield Foods
Smithfield anticipates feeling a margin pinch from grain prices in the coming year and cautioned investors that it will need to raise its own prices in order to maintain margins. With tax season around the corner and consumers still very cautious with their spending habits, it wouldn't surprise me to see Smithfield's profits dip as consumers rotate to chicken, which may be a considerably cheaper alternative. As Jim Cramer says, bulls make money, bears make money, and pigs get slaughtered. Smart investors may want to take some gains off the table at these levels rather than risk being taken to the chopping block later.
Online gaming company Shanda Interactive
I think I-Cahn?
Even more interesting, shareholders -- including hedge-fund Seneca Capital, Dynegy's second largest shareholder behind Carl Icahn -- turned down a takeover bid by Icahn's firm for $5.50 a share last month. I really don't know who deserves a slap on the head here more: Icahn, Seneca Capital, or Dynegy management. Either way, this looks like a situation to avoid until Dynegy can successfully refinance its debt.
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Fool contributor Sean Williams does not own shares in any companies mentioned in this article. He enjoys pork but admits he's a sucker for home-cooked BBQ chicken. You can follow him on CAPS under the screen name TMFUltraLong. NetEase.com is a Motley Fool Rule Breakers selection. 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 which never needs to be sold short.