Are These High-Flying Stocks Headed for a Fall?

Can anything keep this market down? We're now solidly in positive territory for the past year, with little on the immediate horizon threatening to undo winter's big gains. Plenty of companies have seen their share prices soar, but some are floating more on hope than on reality. It's important to determine which stocks deserve to keep going higher, and which might be getting a little overheated. Let's take a look at a few stocks that might need to cool off just a little bit.

Light the fuse
The Dow's up by about 8% over the past year, so I wanted to find some stocks that have grown a fair bit more. But, in that group was a smaller batch of companies with red flags, either in their low forward-growth projections or in their basic business models. Here are the stocks that stood out today:

Sources: Finviz.com and Yahoo! Finance.

"Hi, I'm George Zimmer..."
Don't get me wrong. I like George Zimmer. I dig his low-key commercials and his activism. But we both know that analyst estimates are usually much too high, and the past five years have not been particularly good to the Men's Wearhouse, with cumulative top-line growth of 22% paired with declining net income and free cash flow:

Men's Wearhouse Revenues TTM Chart by YCharts

The stock has had a huge run-up since beating estimates with its December earnings report, but the company's had big pops before that have proven to be unsustainable. You might be tempted to credit Men's Wearhouse with the start of a new growth period, but it's also highly possible that its earnings beat came from a wave of men finally returning to work, or at least buying a suit for interviews. One great quarter does not make for a long-term trend.

I'm placing a one-year, underperform call on this stock in The Motley Fool's CAPS. I guarantee it.

Looking over the cliff
What's not to like about Bristol-Myers Squibb? Two words: patent cliff. This year is a huge one for the company. Plavix is coming off patent, and it'll be hard to replace. The anti-platelet medication has generated just over $6 billion in annual revenue for Bristol-Myers and Sanofi (NYSE: SNY). That one loss alone has a huge impact on the company's minuscule forward growth estimates. One patent-cliff analysis put Bristol-Myers' anticipated revenue growth out to 2020 at about 10% -- cumulatively, not annually.

The stock seems cheap now, according to fellow Fool Morgan Housel's favorite valuation metric. But cheap now doesn't mean sustainable for later. Questionable buyouts, like the company's me-too acquisition of hepatitis drugmaker Inhibitex earlier this year, don't do much to reassure me that the company's got a way over that cliff without significant pain. This will be a long-term underperform call.

Wrong direction
Many of us at the Fool are understandably skeptical about Garmin's future. It's obvious that for many consumers, using Google (Nasdaq: GOOG) mapping features on Android phones is every bit as effective as a dedicated GPS device. There's no real advantage to a Garmin system in your car. But the GPS expert's diversified into other arenas, like fitness products and aviation and boating navigation. Still, Fool contributor Jeremy Bowman picked apart Garmin's supposedly blowout quarter and found trouble in the company's extended reporting period.

But don't take our word for it; just take a look at the company's numbers:

Garmin Revenues TTM Chart by YCharts

Declining revenue, declining net income, and a rising P/E ratio do not offer strong signals for long-term investors. I understand the belief that Garmin's non-car segments can propel growth in the future, but the reality is that there are far fewer recreational fliers and boaters than there are people who need directions from point A to point B on the road. Fitness enthusiasts have a growing breadth of options as well, which include not only activity-specific equipment like the Nike FuelBand, but a breadth of apps that tap into a smartphone's built-in GPS tracking capabilities.

Being great at GPS in a crowded field of other great GPS options isn't enough.

Foolish final thoughts
I've given each of these companies the thumbs-down in CAPS, and I'll be watching their performance to see how my assessments bear out. You might not agree -- indeed, I expect it -- but I hope I've offered a reasonable explanation of my positions that you can incorporate into your investing thesis. If you're looking for a stock with bright prospects ahead, The Motley Fool's got you covered with our top stock for 2012. We've put together a free report that highlights one company's success in an industry that rewards long-term thinking, and its efforts to secure its position in Latin America. Find out everything you need to know -- click here to claim your free report now.