Following an eight-day, nearly 7% rally in the S&P 500, along with the Nasdaq sitting at a 10-year closing high, it's safe to say that the market rally is back in full force -- or at least until this morning's terrible jobs number. 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. Chico's
Still, some other companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
Full of hot air
Not to steal Alka-Seltzer's catch phrase, but plop, plop, fizz, fizz, oh what a relief it is for SodaStream
This isn't to say that SodaStream won't become incredibly popular and prove me wrong, because that has happened plenty of times before. But justifying a forward P/E of 55 in lieu of traditional carbonated beverages providers PepsiCo
Investing for the distant future
Houston American Energy
The company in late 2010 sold off all of its oil well interests in Colombia, netting the company much needed cash but also removing what was 99.2% of all oil production. Couple this with the fact that the average price received for natural gas fell 20% during the most recent quarter and you'll understand even more why revenue tumbled 97%.
Houston American will undoubtedly seek out new wells, but in the meantime investors are left to go off of the information we have on paper. Namely, a company that trades at 40 times trailing 12-month sales, with declining working capital, declining cash on hand, and free-falling revenue and earnings. Nothing to see here folks, move along...
While certain aspects of luxury have thrived even amid the recovery, hotels have not been nearly as fortunate.
Strategic Hotels & Resorts
Also, as a REIT, the primary draw for investors is usually the dividend. In Strategic's case, the company hasn't paid a regular dividend since 2008, making it even easier to pass over this company until it shows investors tangible results.
Rising revPARs, soaring revenue, and promises to lease more wells are fine and dandy, but they don't mean much if they don't translate into a bottom-line profit. Sometimes it's best to wait on the sidelines for tangible evidence that a company is moving in the right direction, rather than risk getting caught in the headwinds if it fails to live up to expectations.
What's your take on these three companies? Are they sells or belles? Share your thoughts in the comments section below and consider adding SodaStream, Houston American Energy, and Strategic Hotels & Resorts to your watchlist to keep up on the latest news from each stocks' respective sector.