Italy remains a hot spot for the world's attention, but here in the United States, we seem not to care, with more than 500 companies within 6% of a new 52-week high. 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-weeks highs have actually earned their current valuations.
Keep in mind that some companies deserve their current valuations. Home improvement outlet Home Depot
Still, other companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
When in doubt, discount
It's pretty hard to argue against Jos. A Bank's
Jos. A Bank relies on steep discounts in order to move merchandise. This can return huge profits when the economy is looking up, but could also bite the company's margins hard if consumer spending habits change. With consumer sentiment figures near 30-month lows, I'm not exactly optimistic about retail spending prospects in the U.S.
Also of worry is the company's valuation relative to the past decade. It may not seem unreasonable that Jos. A Bank is trading at 17 times operating cash flow or 14 times forward earnings, but considering that these are both way above the company's five-year average of 10.3 times cash flow and 12 times earnings, I feel it's cause for concern.
Conflict of interest
In a real case of he said/she said, Group 1 Automotive
Another concern I have with Group 1 relates to its high levels of debt. It's not uncommon for auto-related companies to carry large amounts of debt to finance their business, but at 137% debt-to-equity and considering investors' unwillingness to take on risk recently, Group 1 Automotive could be a stock to run away from at these levels.
Being inexpensive on a per-share basis doesn't necessarily make a stock a buy.
Discounts, debt, and a real lack of growth are three things that will usually land a stock on my list of possible sells.
What's your take on these three companies? Are they sells or belles? Share your thoughts in the comments section below and consider adding Jos. A Bank, Group 1 Automotive, and Wendy's to your free and personalized watchlist in order to keep up on the latest news with each company.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He has a closet full of suits, but lacks enough casual clothes to last him even two weeks. You can follow him on CAPS under the screen name TMFUltraLong , track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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