Netflix (NAS: NFLX) might be down for the 10-count after forecasting losses in the quarters ahead, but that hasn't slowed down the nearly 500 companies currently sitting 6% or less away from a new 52-week high. For optimists, these rallies may seem like a dream come true. For skeptics like me, they're opportunities to see whether companies trading near 52-week highs have actually earned their current valuations.
Keep in mind that some companies deserve their current valuations. Shares of Nuance Communications (NAS: NUAN) have been on fire ever since it was discovered that its voice recognition technology is being used in Apple's (NAS: AAPL) new iPhone 4S. The company also raised its fourth-quarter outlook last week.
Still, other companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
I've been tased, bro
As much as I want to believe in the growth story behind Taser International (NAS: TASR) , I'm finding it more difficult with each passing year. Shortly after the tragic terrorist attacks 10 years ago, Taser's stock found itself shooting to the stars following news that airports and law enforcement would be ordering and using the company's self-defense equipment. Yet here we are 10 years later and growth has slowed to a crawl, and the company continues to struggle to turn a profit.
Over the past year, Taser has missed analyst's estimates twice and met them twice -- not exactly inspiring figures. In fact, the company's gross margin is currently the lowest it has been in the last decade. With budget cuts looming in the defense sector, I'd be worried about being tased by a declining revenue if I were you.
Grin and bear it
Perhaps no sector has been rejuvenated more since the 2008 credit crisis than industrial parts suppliers. One company in that arena that caught my attention is Donaldson (NYS: DCI) -- and not in a good way.
While results have recently been strong for the company -- a 37% jump in earnings per share on a 22% rise in sales over the past year -- the growing cloud cast by a slowing economy could put a damper on its aggressive 2012 forecast. Based on Donaldson's own guidance, it's forecasting a slowdown in revenue growth from 2011, yet margins are expected to remain at or near all-time highs. I personally feel it's going to be very difficult for the company to deliver on these results, and with the company already valued at five times book value and nearly 22 times trailing earnings (versus a much lower industry average of 15 to 16), it could be time to "part ways."
Listen to the consumer
Either the consumer is terribly wrong or retailers are just deluding themselves that this holiday season is going to be a success. Reports released this week indicated that consumer sentiment was at a fresh two-and-a-half-year low, proving that consumers are growing even more skeptical about an economic recovery. That said, one of the ETFs I wouldn't want to own heading into this holiday season is Retail HOLDRS (ASE: RTH) .
Although this ETF is comprised of various retail companies, which helps spread your exposure, the retail environment simply looks scary, with many opting to slash prices (and margins) to move product. September same-store sales figures looked good for most retailers, aside from Gap (NYS: GPS) , but I fully expect those figures to deteriorate as the year wears on. Just as there was a major disconnect between oil demand and oil prices in 2007, I'm seeing that same disconnect here in retail now. Do yourself a favor and leave this ETF on the shelf.
This week it's all about heeding the macroeconomic trends. If the U.S. economy is slowing and budget reductions are around the corner, it's best to position yourself away from companies, or ETFs, that could feel the full brunt of an economic backlash.
What's your take? Are these stocks sells or belles? State your case in the comments section below and consider adding Taser International, Donaldson, and Retail HOLDRS to your free and personalized watchlist to keep up on the latest news with each stock.
At the time thisarticle was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong and on Twitter where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Apple and Gap. Motley Fool newsletter services have recommended buying shares of Netflix, Nuance Communications, and Apple, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter services free 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 a disclosure policy that never needs to be sold short.