With the S&P 500 sitting near a five-year high, a review of the Motley Fool CAPS Screener database shows that half... half... of all listed companies are within 10% of 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. Coca-Cola Enterprises, for instance, has been in full rally mode since updating its full-year guidance to the high end of its previous estimates four weeks ago and authorizing $1.5 billion in new share repurchases -- $500 million of which will take place in 2013.
Still, other companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
Look before you leap
The purchase of the NYSE Euronext by IntercontinentalExchange (NYSE:ICE) for $8.2 billion last month sent a shockwave throughout much of the exchange sector and gave investors hope that more mergers could be on the way.
One of the companies caught in the center of future merger talks is CBOE Holdings (NYSEMKT:CBOE) which provides a marketplace to trade stocks and various options and futures contracts. But CBOE CEO William Brodsky quickly denied market speculation that it too may seek a merger in lieu of the ICE and NYSE Euronext merger, noting that the merger won't change the way the CBOE does business. However, I think the ICE/NYSE combination will indeed slow down growth in an already highly competitive and trade-tightening marketplace. ICE will be able to more directly take on CME Group and CBOE Holdings, which, I think, will eat into what has already been a subpar growth rate.
On the basis of valuation, CBOE's forward P/E of 18 just doesn't seem justified with a projected revenue growth rate of only 6.5% in 2013 and ICE/NYSE coming together.
This is as good as it gets
When reviewing a company, I'll often ask myself, "Is this as good as it gets?" -- Yes, feel free to throw in the "He talks to himself" jabs in the comments section -- and in the case of Tanger Factory Outlet (NYSE:SKT), a retail REIT, I believe the answer is "Yes!"
Tanger has really offered REIT investors an exceptionally strong performance since the recession. It's raised its annual dividend in 19 consecutive years and its occupancy rate actually grew in its outlet centers to 98.6% as cost-conscious consumers flocked to perceived discount retailers, which Tanger calls its tenants. But this really looks like it could be as good as it gets.
The American Taxpayer Relief Act will remove nearly $1,000 from the average American's paycheck in 2013 and beyond, which I figure will come out of vacation and retail spending budgets. Outlet malls aren't immune from reduced consumer spending, even if they've exhibited better overall performance than standard malls. With an occupancy rate of nearly 99%, there just really isn't much room for improvement, and considering Tanger's huge share price increase, it's now pricier than many of its retail REIT peers. The time to buy retail REITs is during recessions, and the time to sell them is usually one or two years after a recession. The way I look at it, Tanger is running on borrowed time.
I've been quite vocal over the years about my distrust of any rally in the housing market. Although we've seen clear signs of a bottom, and mortgage rates are set to remain near record lows for quite some time, the sheer number of foreclosures and bad loans sitting on bank balance sheets astounds me. Plus, with rates staying so artificially low for so long, I worry about the repercussions to the housing sector once rates do eventually start nudging higher. That's why I have my eyes set on selling the iShares Global Timber & Forestry Index (NASDAQ:WOOD).
In recent months, housing figures have been strong, but peeling back the payroll tax is bound to hurt prospective homebuyers' savings rates. Also, from a valuation perspective, the average P/E of the holdings within this ETF is a staggering 16. That may not seem like much, but it's higher than the aggregate S&P 500 P/E, and significantly higher than quite a few tech companies with faster growth rates at nearly half the P/E of this ETF. Furthermore, its 1.3% yield trails that of the S&P 500. Thanks, but no thanks!
This week's theme, in the spirit of Jack Nicholson, boils down to "Is this as good as it gets?" In terms of housing growth, retail outlet occupancy, and options activity, I feel we've hit an apex for the time being.