The Dow may be on track to log its fourth straight down week, but many companies have hardly budged from their 52-week highs. For optimists, 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 have actually earned their current valuations.
Keep in mind that some companies deserve their lofty prices. Take GameStop
Sprint Nextel has been unimpressive for some time now, hemorrhaging subscribers and going from once-healthy past quarterly profits into sizable current losses. Even the company's investment portfolio has been sacking its performance. Clearwire
We're talkin' about doughnuts, man … doughnuts! Traders are too busy being hyped up on Krispy Kreme's
Despite the company's best effort to raise prices in light of rapidly rising input costs, customers are spending less per check. Also worrisome were comments the CEO made in the company's March annual filing that the typical Krispy Kreme customer visits the chain only once a month. Being unable to successfully pass along price increases and get recurring customers back into the store is an ongoing concern I have. Considering there are cheaper alternatives out there to Krispy Kreme, I'd avoid this jelly doughnut and consider something healthier for your investment portfolio.
Say what, Graham Smith?
For those of you who actually took the time to listen to the company's conference call, did anyone happen to catch the red flags CFO Graham Smith was throwing investors? To summarize, Smith attributed a good portion of the company's first-quarter profits to beneficial currency exchange rates and forecast flat-to-down deferred revenue in the second quarter. Trading at 80 times forward earnings, deferred revenue growth is what salesforce.com is all about, so this could be the 800-pound gorilla short-sellers have been looking for. As for me, I'd suggest getting your head out of the clouds and giving this company a closer look.
Can you hear me now?
The lesson this week is to pay attention to what management is telling you. Often as traders we overlook the potatoes and go straight to the meat (the actual earnings figures). Remember that as investors we need to take in all aspects of our meal before we take a bite -- and in this case, the above companies aren't putting much on the plate.
So are these stocks sells or belles? Share your ideas in the comments section below and consider tracking Sprint Nextel, Krispy Kreme, and salesforce.com, as well as your own personalized list of stocks with My Watchlist.
The Fool owns shares of GameStop. Motley Fool newsletter services have recommended buying shares of salesforce.com and AT&T, and writing covered calls in GameStop. A separate Motley Fool newsletter service has recommended salesforce.com as a short-sale.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong. 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 that never needs to be sold short.