Federal Reserve Chairman Ben Bernanke doesn't exactly have a way of exciting the markets, but that didn't seem to matter to the dozens of companies that hit new highs this week. 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 valuations. Shares of dollar stores are thriving as they take advantage of consumers' penny-pinching ways following the lengthy recession. Dollar Tree
Still, some companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
The roof, the roof is on fire
The housing market is a mess. Home prices have once again begun spiraling downward, and a glut of foreclosed homes sits on the market unsold, leaving little room for new housing. Despite this, shares of Beacon Roofing Supply
Beacon's role in Canada's more stable housing market undoubtedly has played a role in boosting its stock, but U.S. housing market forecasts remain bleak. Whether the housing market double dips, I think it may be a bit premature to make a bullish call on suppliers to the homebuilding sector. Beacon has resoundingly missed consensus EPS estimates in three of the past four quarters. In its most recent quarterly report, the company noted a decrease in residential sales coupled with a jump in operating costs. These are potential red flags that current shareholders should be wary of.
Beware the sugar crash
Investors in Hansen Natural
It's not that Hansen Natural isn't delivering impressive growth, because five-year projections call for annual growth of 14.6%. The real worry is from a valuation perspective relative to its peers. There's no question that Hansen is going to grow more rapidly than PepsiCo
Also consider that Coke and Pepsi pay out dividend yields close to 3%, while Hansen pays no dividend to shareholders, and you can see why this drink may go sour with shareholders sooner rather than later.
Don't yield to high yields
Not to completely pick on the housing sector again, but what are shareholders thinking by pumping Capstead Mortgage
After enjoying big spreads in interest rates, estimates for future growth for mortgage REITs are coming down. In fact, Capstead has a negative projected growth rate for the next five years. That means you should expect that attractive 13% yield to fall in the coming years. You have to pick and choose wisely with REITs, and this may be one to pass on.
This week was not just about picking on the housing sector, but was aimed at examining just how fragile consumer spending habits are. Consumers are still very gun-shy about spending for big and small purchases, so investors need to adjust their trading strategies accordingly.
What's your take on these companies? Are they sells or belles? Share your genius with the community in the comments section below and consider adding Beacon Roofing Supply, Hansen Natural, and Capstead Mortgage to your watchlist to keep up on the latest news in these stocks' respective sectors.
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. The Motley Fool owns shares of Coca-Cola and Pepsi. Motley Fool newsletter services have recommended buying shares of Coca-Cola, Hansen Natural, and Pepsi, as well as creating a diagonal call position in Pepsi. 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.