For those not yet accustomed to these wild price swings, there's always Pepto Bismol. For everyone else, it should come as no surprise that dozens of new highs were made within the past week. For optimists, these rallies may seem like a dream come true. For skeptics like me, they're opportunities to see whether companies trading near their 52-week highs have actually earned their current valuations.
Keep in mind that some companies deserve their lofty valuations. Coca-Cola (NYS: KO) investors have largely shrugged off an uncertain near-term economic outlook following the company's 4% jump in sparkling beverage sales, and 7% spike in still beverage sales, as detailed in its second-quarter filing.
Still, other companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
Shop till you drop
Good luck convincing BJ's Wholesale (NYS: BJ) customers that the outside chance of a double-dip recession exists. One of the main competitors to Wal-Mart (NYS: WMT) , BJ's stock has only inched higher since private equity player Leonard Green agreed to purchase the company for $51.25 per share in cash. Currently valued at just a fraction below that all-cash price, and considerably pricier than its peers, now may be the perfect time to trade up.
Even prior to the purchase, BJ's stock wasn't all that cheap. Its latest earnings report detailed a 3.8% jump in same-store sales -- excluding fuel. But more importantly, visits to its stores were flat. The growth really derived from price increases passed along to consumers and from cost cutting. Without a buyout, with BJ's valued at 16 times forward earnings, I'd much rather own Wal-Mart, which, at 11 times forward earnings and sporting a yield of 2.8%, makes a far more attractive play.
The volatility over the past few weeks reminds me of an E*TRADE commercial where a day trader jumps out his window after witnessing his losses piling up -- luckily for him, the window was on the first floor. All kidding aside, day trading and volatility are no laughing matter, but buying into volatility-based ETFs certainly should be.
Due to the daily rebalancing and decay factor that highly levered ETFs suffer, I cringe in horror when I see traders suckered into such terrible purchases as the VelocityShares Daily 2X VIX (NYS: TVIX) or the VelocityShares Long VIX Short Term (NYS: VIIX) . While a few traders were lucky enough to time their purchases correctly, over the long term, these ETFs are heading lower. Do yourself a favor and avoid the hype surrounding these terrible investment vehicles.
Since this week is all about trading up to better ideas, I have to wonder what shareholders of Allied Nevada Gold (ASE: ANV) are thinking with their stock currently valued at more than 250 times trailing-12-month earnings. I have to applaud Allied for its extremely low mining costs, but even taking into account the explosive growth ahead, it just doesn't justify a forward earnings multiple of 22.
Instead, if gold is your go-to investment, I suggest looking further into Newmont Mining (NYS: NEM) , a considerably larger and more well-established miner. Not only does Newmont trade at a lower future earnings multiple, but the company has also linked its dividend to the price of gold. If gold can continue its run and regain the $1,900/oz. mark, investors could be privy to dividends of more than $1 per quarter in the not-so-distant future.
As stated earlier, this week it's all about trading up and out of companies that have lost their potential to add to our bottom line. Whether it's because of a buyout, time decay, or sheer valuation, sometimes it's best to jump ship to a competitor if that's where the real value lies.
What's your take on these companies and ETFs? Are they sells or belles? Share your thoughts in the comments section below and consider adding BJ's Wholesale, VelocityShares Daily 2X VIX, VelocityShares Long VIX Short Term, and Allied Nevada Gold to your watchlist.
At the time thisarticle was published Fool contributorSean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLongThe Motley Fool owns shares of Wal-Mart and Coca-Cola.Motley Fool newsletter services have recommended buying shares of Wal-Mart and Coca-Cola, and creating a diagonal call position in Wal-Mart. Try any of our Foolish newsletter servicesfree for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policythat never needs to be sold short.
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