Perhaps if all the king's horses and all the king's men (and every central bank in Europe and the U.S.) put their wealth together, there might be enough to save Europe again. For skeptics like me, they're opportunities to see whether companies have earned their current valuations.
Keep in mind that some companies deserve their current valuations. Construction and management services company Shaw Group
Still, other companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
Bio-check yourself before your wreck yourself
It's difficult enough finding a big pharmaceutical company that can regularly bring growth to the table, so imagine how difficult it is to find biotech companies that are stable and offer a dividend. Amgen
In Amgen's latest quarter, the company revised its guidance higher on a 10% increase in Enbrel sales and strong growth from some of its newer drugs. However, take a step back and take a look at how it's really generating this growth. Amgen, last year, announced a share repurchase program that would allow it to buy up to $10 billion worth of stock. That reduction in shares will boost EPS without the company actually growing its bottom line -- and that's precisely the reason I'm giving Amgen the thumbs-down here.
If you take a look at Amgen over the past five years, it has grown by a meager 1.8% annually with many of its larger revenue producers stagnating. Amgen's growth engine just hasn't been the same since pre-recession times. I'm not buying into Amgen's share buyback deception and want to see real growth from this biotech, otherwise I just as soon look toward "Big Pharma" which offers lower price-to-cash-flow ratios and higher dividend yields.
Not out of the woods just yet
Regional banking giant US Bancorp
So why would I recommend selling US Bancorp when the bank is so clearly outperforming its peers? Simply put: It's not out of the woods yet. Even though it lacks exposure to Europe, what goes on in Europe will affect spending and exports in the U.S., which could have a negative trickle-down effect to its customers. Although bad loan loss reserves dropped again, I don't see how that trend can keep up with GDP growth slowing and wage growth currently below inflation.
Perhaps the biggest damning factor to me is US Bancorp's valuation. I pretty much have a strict "sell them at two times book value" rule with banks. At about 1.95 times book value, US Bancorp is looking more than fairly valued. With many banks trading below book value (albeit with more inherent risks and exposure), I'd opt to take my chances elsewhere.
Don't count those chickens just yet
In this week's episode of "As the Liquid-Natural Gas Turns," we'll take a closer look at potential LNG powerhouse InterOil
InterOil, operating out of Papua New Guinea, signed an agreement with its parliamentary government in 2009 to supply between 7.6 million and 10.2 million metric tons of LNG per year from its Elk and Antelope gas reserves. Also, as part of this agreement, InterOil was supposed to sell at least a 50.5% stake in its Elk and Antelope reserves to a major international company that regularly dealt with assets that were similar in size. Between the constant red tape from the Papua New Guinea parliament and InterOil's lack of wanting to divest its assets, and to keep control of its upstream segment, the deal between the two parties could very well fail -- yet investors are pricing the stock as if it's been delivering for two or three years.
Currently valued at more than 150 times trailing 12-month earnings and approaching 1,000 times forward earnings, InterOil is a long shot to succeed. The company, as of last week, is in negotiations with Royal Dutch Shell
After a week of big gains we're looking at big names that could be ripe to fall. Amgen hasn't really shown me the growth over the past five years while US Bancorp's valuation does it in. As for InterOil, red tape and hubris could take down this multi-billion dollar company.
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