Although Congress is doing the best it can to sack the stock market, it wasn't enough to keep hundreds of companies from marching on to near 52-week highs. 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 earned their current valuations.
Keep in mind that some companies do deserve their current valuations. Despite a nearly 30-month low in consumer confidence, Nike (NYS: NKE) keeps putting one foot in front of the other and stepping higher. Following a 12% earnings beat in September, the shoe juggernaut appears unstoppable and uncatchable among its peers.
Still, other companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
Shareholders of department store Macy's (NYS: M) have been riding high since the lows of 2009. The highly levered company was able to avoid its debt woes and has turned in two impressive years in a row. But I'm afraid that streak may be coming to an end.
Although Macy's sells a wide variety of merchandise, from clothes to appliances, I can't help taking cues from recent weakness in Chico's (NYS: CHS) and Abercrombie & Fitch (NYS: ANF) as a call for concern. Chico's profits fell short of expectations, largely because of higher levels of discounts, while Abercrombie felt the pangs of a slowdown in Europe and rising material costs. Add this together with already low consumer-confidence figures, and you have a recipe where even the former leader in each respective sector isn't safe. Make no mistake -- with nearly $7 billion in debt still on its books, Macy's could very easily deflate from its recent highs.
Don't play this game of chicken
Being a producer of pork and poultry is downright difficult right now. Prices for feeding livestock are rising, and the market for poultry, especially in restaurants, has been lagging. You wouldn't know that, however, by looking at Sanderson Farms' (NAS: SAFM) stock price, which is nearing a new high.
The poultry producer in August reported a quarterly loss that was more than 150% worse than analysts had projected. Sanderson blamed falling demand in chicken, falling poultry prices, and rising costs as the primary culprit. This also marked the third straight quarter of losses for Sanderson. Looking ahead, Wall Street anticipates that Sanderson will lose money in each of the next two quarters and won't return to profitability till next year. Unwisely choosing to still pay out a dividend, Sanderson is burning through its precious cash while continuing to produce quarterly loss after loss. I don't know about you, but with Tyson Foods (NYS: TSN) sitting out there at a mere 8 times forward earnings and remaining profitable every quarter, I know where I'd be playing chicken in my portfolio.
Did someone miss the memo?
Apparently Fastenal (NAS: FAST) missed the memo that mentioned there was a downturn in residential housing, because its recent results speak otherwise. For October, sales increased 21.4% over the year-ago period, backing up the recent strength in non-residential business that it alluded to in its third-quarter results last month.
So why sell Fastenal? This is one of the very few calls I will make based solely on valuation. Fastenal is not the type of company that's going to surprise Wall Street with an amazing growth rate or a fancy new product -- but it's trading like as if it will. It makes little sense trying to justify a forward earnings multiple of 28, a price-to-book of 8, and a PEG ratio of nearly 2 for a company in an already very shaky construction sector. Despite the strong results, I'm leaving Fastenal on the shelf.
Apparel, poultry, and construction have all been weak recently, and it should come as no surprise why they make my list of sells this week.
What's your take? Are these stocks sells or belles? Share your thoughts in the comments section below, and consider adding Macy's, Sanderson Farms, and Fastenal to your free and personalized watchlist to keep up on the latest news with each company.
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 nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.Motley Fool newsletter serviceshave recommended buying shares of and creating a diagonal call position in Nike. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't 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.