Commodities may be in the midst of a nasty sell-off, and worries about Cyprus' financial ripples continue to persist, yet 2,300 of 4,800 companies in The Motley Fool CAPS Screener database are still 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. Take Coca-Cola (NYSE:KO), for example, which reported better-than-expected first-quarter results earlier this week as global volume jumped 4%. It also announced a restructuring of its U.S. bottling business in an effort to improve quality and efficiency. This is just another reason you don't bet against what is, according to Interbrand, the most valuable brand in the world.
Still, other companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
Beware of choppy waters
I freely admit that I have a predisposition that simply will not allow me to like the amusement park sector. I've previously featured Six Flags in my CAPScall series because of the incredible amount of cyclicality associated with the business and its relatively high debt levels. Today, I have a new company to add to the list: Cedar Fair (NYSE:FUN).
Cedar Fair -- aptly tickered "FUN" -- is a water-park operator in North America and Canada, and also owns five hotels. The allure is pretty simple -- a 6% yield and three straight years of record revenue and adjusted EBITDA. The reasons to avoid seem even clearer to me.
To begin with, at least standard amusement parks can be operated year-round. Water-themed parks have such a short time frame when they are usable each year because they're entirely dependent on the weather and/or geographic region they operate in (unless it's an entirely indoor theme park). Second, maintenance, research and development, and new additions cost an arm and a leg, which has put Cedar Fair under a mountain of debt -- $1.56 billion, to be exact. Finally, I don't feel that current Wall Street estimates are factoring in elevated payroll taxes or the soon-to-be-enacted Patient Protection and Affordable Care Act, which could reduce consumers' take home pay and leisure budget.
My advice here would be to be wary of choppy waters in the quarters ahead.
Captain, I just don't have the infrastructure!
Without question, car companies are on a quest to create the perfect blend of performance, fuel-efficiency, and zero emissions. At the moment, only one company has done a good job of that, and its name is Tesla Motors. But looking at the big picture, the electric vehicles that Tesla produces make up just a fraction of the current automotive market. The real barrier to entry for any alternative modes of transportation is a lack of infrastructure, which is why I think the recent rally in ECOtality (OTC:ECTYQ) is unwarranted.
ECOtality offers EV charging stations under its Blink brand, as well as other EV technologies. Revenue for 2012 jumped 93% for the full year to $54.7 million as it drastically boosted the rollout of its Blink charging stations. However, as you might expect with the rollout of a network of EV charging stations, expenses are rising and the company is still very much in the red. Although its net loss shrank by 67% in 2012, it still lost $0.40 per share.
This is the kind of story that could have merit perhaps a decade from now when EVs play a bigger role on the road. At the moment, with Tesla providing what seems like the only meaningful EV contribution, I can't see there being enough demand to drive ECOtality into the black -- even if it focuses on commercial and industrial customers. Furthermore, ECOtality ended the quarter with only $1.9 million in cash on hand and has consistently delivered negative free cash flow. This is not a recipe for success!
A blast to the past
It's occasionally very difficult to value biotech stocks, because of the wide range of outcomes possible given their pipelines. Other times, as in the case with Regulus Pharmaceuticals (NASDAQ:RGLS), I bang my head against a table and wonder what the heck investors are thinking.
Regulus, which was formed by Alnylam Pharmaceuticals and ISIS Pharmaceuticals in 2007, is a microRNA therapeutics company that has access to approximately 900 oligonucleotide technologies that it can use in its microRNA research. Outside of these patents, Regulus is a ship adrift at sea.
Regulus' entire pipeline as of now is completely pre-clinical, and it likely isn't going to submit an IND to the Food and Drug Administration until next year at the earliest. In addition, one of Regulus' lead drug candidates, which it's collaborating on with GlaxoSmithKline, is an intravenous hepatitis-C vaccine known as miR-122. As Foolish community member zzlangerhans so poignantly put it, "Where has management been for the last five years?" Gilead Sciences and AbbVie's hep-C oral pills are the wave of the future and Regulus is years upon years away from having a viable drug opportunity.
This week, it's all about what can you do for me now. Both Regulus and ECOtality have rallied because of their potential, but the actual bottom-line results likely won't be there until the latter half of this decade at the earliest. With regard to Cedar Fair, it's all about the potential for inconsistencies and the multiple factors of its business that it can't control that makes me want to click the "avoid" button.