Nearly half (48%, to be exact) of the roughly 4,900 companies in the Motley Fool CAPS Screener database are 10% away or less from a new 52-week high! For skeptics like me, that's an opportunity to see whether companies have earned their current valuations.
Keep in mind that some companies deserve their current valuations. This "little company" called Apple
Still, other companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
Supply chain drain
I'm sorry to tell you this, Manhattan Associates
Earlier this week, logistics giant FedEx noted a slowdown in premium shipping demand and lowered its full-year EPS forecast in accordance with that weakness. As FedEx is a global gauge of small-business health, its warning presents a tangible concern for countless sectors. Supply chain software provider Manhattan Associates is one such company that should consider itself on watch.
Manhattan Associates' software assists companies with inventory, warehouse, and shipping management. If FedEx is cautioning that businesses are cutting back on premium shipping, you can almost bet that Manhattan's software sales are at risk of a slowdown. Furthermore, Manhattan Associates isn't particularly cheap, either. The company's full-year forecast calls for earnings growth of 9% to 10%, yet it's trading at about 20 times forward earnings and seven times book value. It does have a rich history of beating Wall Street's earnings expectations, but that's a streak I'm willing to bet comes to an abrupt end over the next few quarters.
Restless stock syndrome
What's with the valuation of biotechnology companies lately? It seems they're all headed to the stratosphere, and many without justification. Next up on the underperform list is neurological disorder-focused drug company XenoPort
XenoPort at least has an FDA-approved drug in Horizant (known as Regnite in Japan), a treatment for restless leg syndrome, and recently received approval for the drug to treat postherpetic neuralgia in adults, which is more than I can say for some other featured biotechs in this series.
However, Horizant/Regnite's prospects are far from exciting. Partnered with Astellas Pharma in Japan and other Southeast Asian countries, XenoPort has already received $65 million in milestones and is entitled to receive only $20 million more. Back home in the U.S., GlaxoSmithKline, XenoPort's marketing partner for Horizant, recorded a laughable $1.3 million in sales during its most recent quarter. Peak sales of the drug in the U.S. were pegged between $200 million and $500 million by analysts last year, but even that may not be enough to get XenoPort to profitability. Just having an FDA-approved drug with two indications shouldn't be enough to move XenoPort up about 150% since May, and is the primary reason I remain decidedly pessimistic on the stock.
Don't touch the lever
Just when you think you've found every instrument of leveraged destruction that the market can offer, another one slaps you across the face. Today's featured ETF of mass destruction is the Direxion Daily Healthcare Bull 3X ETF
Aside from bonus points for the ETF's ticker symbol, there's absolutely nothing appealing about leveraging your money to the health-care sector -- let alone three times the average return of the SPDR Health Care Select Sector Index. Biotechnology and health care companies have had an incredible run since the passing of the Affordable Care Act. But, as I noted when I rated the ProShares Ultra Biotechnology Index an underperform, there's no sustainability to these valuations. The health care sector looks poised to be a winner over the long run, but the required daily rebalancing of triple-levered ETFs like this one are bound to eat away at your money over time. Thanks, but no thanks!
Foolish roundup
This week's theme is to take what the market gives you. FedEx has given us a clear warning shot to stay away from supply chain and logistic companies, while Glaxo's weak sales of Horizant provide the impetus to steer clear of XenoPort until sales visibility improves.
I'm so confident in my three calls that I plan to make a CAPScall of underperform on each one. The question is: Would you do the same?
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