Even with the market giving back some of its pop from the past few weeks, more than 500 companies are within 6% of 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 do deserve their current valuations. Liquidity Services (NAS: LQDT) , a company that helps businesses and the U.S. government get rid of scrap and surplus products, has been on a tear, with economic hardships at a high and consumers on the lookout for a good deal.
Still, other companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
To borrow a phrase from fellow Fool Rick Munarriz, ConAgra (NYS: CAG) "stopped being great" years ago, and now might be the time to put this food behemoth back on the shelf.
Over the past decade both ConAgra's stock and its revenues have risen at a slow pace. Despite increasing the prices it charges and bringing in a new mix of food products, ConAgra has been unable to fend off the rising tide of inflation. In its latest quarterly report, the company alluded to an 11% jump in inflation, which more than outweighed any cost savings the company had put in place.
This isn't to say that ConAgra is going to lose money anytime soon; it's still a solidly profitable company. But it became clear with ConAgra's multiple unsuccessful bids to buy Ralcorp Holdings (NYS: RAH) that it can no longer grow much, if at all, organically. The expiration date appears to have come and gone for the bulls on this trade, and I'd advise passing on this staple stock.
You know those non-brand ATMs you've used that charge you an exorbitant fee to get cash? Well, chances are decent that they were from Global Cash Access (NYS: GCA) . You'd think the company would make a killing on this business -- especially being based in Las Vegas and inside most casinos. But don't judge this book by its cover.
Underneath these profits are a few troubling trends. The first began one year ago when the company lost its largest client. That undoubtedly contributed to Global Cash's 10% year-over-year drop in revenue in the third quarter. Second, Global Cash has missed Wall Street's estimates by double-digit percentages in six straight quarters. So, call me not-too-convinced when the company "reaffirmed guidance" in the most recent quarter. At less than eight times forward earnings, Global Cash appears cheap, but its revenue stream and consistency seem very much in question. This is one ATM that is not getting my business.
Tank you very much
Since being an operator of cargo tankers has been such a huge success recently (that's sarcasm, by the way), I thought this final spot should go to Golar LNG (NAS: GLNG) . First fuel cells, then ethanol, now liquefied natural gas and anything associated with LNG is soaring -- some of it without much reasoning.
Golar's impressive (more sarcasm) fleet of 13 vessels do have the competitive advantage at present of providing Japan with LNG while many of its nuclear reactors are offline or still being repaired. Even so, this extra workload has done nothing to make Golar look anything like a value. At 86 times trailing-12-month earnings and negative free cash flow, Golar looks like a short-seller's paradise next to primary rival Teekay LNG Partners (NYS: TGP) , priced at just 16 times earnings with positive FCF of $112 million.
With all three profitable, it took some digging to see the hidden flaws this week. Whether it's a lack of growth, losing a large client, or having yet to live up to expectations, all three of these stocks exhibit warning signs that make me want to yell, "Sell!" I'm so confident in these picks, I'm going to make a CAPScall on all three to the downside. The question now is, would you do the same?
Share your thoughts in the comments section below and consider adding ConAgra, Global Cash Access, and Golar LNG to your free and personalized watchlist to keep up on the latest news from each company.
At the time thisarticle was published Fool contributorSean Williamshas no material interest in any companies mentioned in this article. Since he uses credit for everything he's almost forgotten what cash looks like. 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 Liquidity Services. 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.
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