This week it's all about swapping higher-priced companies for what appear to be better values in the same sector. Even with continued worldwide market turmoil, handfuls of stocks continue to hit new 52-week highs. 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. Jazz Pharmaceuticals
Valuation not working
Don't get me wrong: For years, Polycom's
Polycom's five-year projected growth rate of 16% seems impressive, but at 63 times its trailing-12-month earnings, I'm betting better values can be had elsewhere. On top of that, Polycom ended the year with almost $500 million in cash and short-term investments, but investors aren't seeing any of it in the form of a dividend or a stock buyback. Instead, I'd advise looking into rival Tekelec
More foundation, please
It's amazing what some people will do to look beautiful. Unfortunately, there's only so much makeup you can put on a stock before it begins to look ugly. For Ulta Salon
The company trades at more than 35 times its cash flow and has a forward PEG ratio of 1.85. Cosmetics stocks are historically cyclical, falling off dramatically as soon as consumer sentiment takes a dive. Investors may be wise to tread cautiously here and consider a cheaper alternative like Procter & Gamble
Check, please!
Finally, BJ's Restaurants
Rather than paying a premium for BJ's, I'd consider looking at my highlighted small cap for this week, Buffalo Wild Wings
What's your take on these pricey stocks? Am I abandoning ship too early or should caution be heeded? Share your thoughts in the comments section below and consider tracking these companies and your own personalized portfolio of stocks with the free and easy-to-use My Watchlist.
- Add Polycom to My Watchlist.
- Add Ulta Salon to My Watchlist.
- Add BJ's Restaurants to My Watchlist.