With the prospect of a European bailout nearly finalized -- maybe! -- the market seems to be generally bullish, but I say caution should still be heeded. For optimists, these rallies may seem like a dream come true. For skeptics like me, they're opportunities to see whether companies trading near 52-week highs have actually earned their current valuations.
Keep in mind that some companies deserve their current valuations. True Religion Apparel
Still, other companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
One moment please...recalculating
Shareholders of Garmin
Garmin, a producer and manufacturer of GPS and navigation devices, has come under pressure from the likes of Apple
For Peet's sake
Companies in the coffee sector appear to be taking turns as to see who can be the most overvalued, and it looks like Peet's Coffee & Tea
Looking at Peet's earnings report released earlier this week, it ground out another double-digit revenue gain, but it also saw profits fall and costs rise. Costs as a percentage of sales rose from 47.5% in the year-ago period to 51.6%. The company primarily blamed rising coffee prices for the spike in costs, but noted that milk costs and a shift toward the specialty coffee business contributed as well.
Looking forward, I can't say that Peet's forward guidance of "around 10%" revenue growth was very reassuring. This places the company at somewhere between 33 to 36 times forward earnings with revenue growth slowing and costs rising. That's a dangerous combination likely to cause acid reflux for its shareholders.
Perhaps the most interesting conundrum at present is that of retail versus consumer confidence. Retail sales have been stellar over the past few quarters, yet consumer confidence figures are wading along at two-and-a-half year lows -- and something has got to give. In this case, I feel you listen to the consumer confidence figures and vote no confidence on retailers. This week I specifically want to look at Express
Although Express was able to raise guidance for the full year, the company's third-quarter profit fell to $0.14 from $0.25 in the year prior, with rising costs and the disappearance of a one-time tax benefit contributing to the drop. As we head into Christmas, I'm not confident that Express can continue to sell items at full price, and I'm even less confident it will be able to control its costs. To add, Express is currently valued at 11 times book -- a brutal overvaluation when you can go out and get American Eagle Outfitters
This week it's all about longevity -- and I'd be willing to bet my CAPS points that these companies simply can't keep up their current results for much longer.
What are your thoughts? Are these stocks sells or belles? Share your ideas in the comments section below and consider adding Garmin, Peet's Coffee & Tea, and Express to your free and personalized watchlist to keep track of the latest news for each company.
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, hold him accountable for every pick he makes under the screen name TrackUltraLong, and on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Google and Apple. Motley Fool newsletter services have recommended buying shares of Google and Apple, as well as creating a bull call spread position in Apple. 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.
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