Not even poor economic data and decidedly bearish action on the Dow and Nasdaq could sack the optimism which drove many stocks to new 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 Union Pacific
Still, some companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
Ready to be drilled?
Petrohawk has benefitted from being one of the earliest oil and gas companies to take advantage of Texas's Eagle Ford Shale region, and analysts project revenue growth of 55% this year alone. However, the company has only recently returned to profitability, and with nearly $3 billion in debt, it still remains highly levered when compared to more cheaply valued rivals ConocoPhillips
Tysabri accounted for 78% of Elan's $313 million in first-quarter revenue, which is both a resounding testament to the effectiveness of the drug, and a scary reality-check regarding how underdeveloped Elan's pipeline is. Elan lost roughly $39 million in revenue this past quarter from the cessation of several legacy products, underscoring just how fragile its pipeline has become. It's not too far-fetched to consider Tysabri a mature drug at this point, so I have to wonder where Elan's future growth will come from. Considering that Elan has posted significant losses in the past 12 months, it may be time to ditch this one-drug wonder.
As a longtime (and highly successful) Motley Fool Rule Breakers selection, Netflix
Netflix's business is based around subscriber growth, and I just don't see how the company will be able to keep up its rapid growth pace. To me, the demand for Netflix seems to be nearly at full saturation, and as fellow Fool Matt Koppenheffer has pointed out, companies that maintain very high P/Es rarely manage to sustain them for long periods of time. At more than 50 times book value, Netflix simply doesn't make sense here, and I'd consider trading this in for a cheaper alternative.
This week is all about trading up or trading out of companies that are priced for perfection in a sector with cheaper alternatives. Remember, there's no sense in paying a premium for a company whose growth rate looks almost certain to slow.
What's your take on these stocks: Are they sells or belles? You be the judge in the comments section below. Also, consider tracking Petrohawk Energy, Elan, and Netflix by adding them to our free My Watchlist service.
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. Motley Fool newsletter services have recommended buying shares of Elan, Atwood Oceanics, and Netflix, as well as buying puts on Netflix. 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.