3 Stocks Near 52-Week Highs Worth Selling

The new year has started off with a bang and plenty of what I would deem "unworthy" stocks are creeping up on new 52-week highs. For optimists, these rallies may seem like a dream come true. For skeptics like me, they're opportunities to see whether these companies have actually earned their current valuations.

Keep in mind that some companies do deserve their current valuations. Tech giant Google (NAS: GOOG) deserves every bit of praise it has received of late for its game-changing Android and corporate initiatives. The company has had two straight huge quarterly beats. Valued at only 15 times forward earnings yet sporting a five-year expected growth rate of 19%, the stock is still cheap by my standards.

Still, other companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.

Powering down
As a former resident of California, I firmly recall when Edison International (NYS: EIX) nearly collapsed under the weight of its debt and California's energy deregulation in 2001. Since that incident, I've never quite trusted the electrical powerhouse, despite the fact that it distributes electricity to nearly 14 million residents of the state.

The primary issue for me continues to remain Edison's debt load, which currently weighs in at $13.6 billion. With a debt-to-equity ratio of 113%, I'd want to see revenue growth of more than 3% per year if I were to take a flier on this stock. On top of this, according to estimates on Yahoo! Finance, Edison's profits are expected to fall in 2012 by 12%. In my eyes Edison will always be that struggling utility that will never regain its former glory. I'd suggest looking elsewhere for an income-producing utility.

It don't mean a thing if you ain't got that... profit!
Shares of RAM Energy Resources (NYS: RAM) have been on fire over the past two weeks (to put it mildly). The stock has climbed 179% following news that former Petrohawk CEO Floyd Wilson and his company, Halcon Resources, are going to invest $550 million in RAM. Although I'm not from Missouri, I'm always about the "Show Me" state -- and RAM isn't showing me enough to support this valuation.

For one, RAM is expected to bring 200 million shares to market to close the $550 million investment, which could mean heavy dilution for shareholders at its current lofty price. Secondly, estimates of RAM's revenue are heading in the wrong direction -- not exactly something to take lightly when faced with a forward P/E of 145 and a price-to-book of nearly 14. Until I see RAM's assets turned into tangible results, there's simply no reason for the hype.

Investing disconnection
Earlier in the week, I looked at South Korean mobile operator SK Telecom (NYS: SKM) and labeled it a very cheap foreign telecom that also packs a solid dividend punch. On the flip side of the foreign telecom trade, we have Philippine Long Distance Telephone (NYS: PHI) , which is trading in many respects at twice the valuation of SK Telecom and is starting to look like a perfect sell candidate.

Whereas SK Telecom has had a long run of increasing revenue over the past decade and trades at a forward multiple of just 7, Philippine Long Distance's revenue has been flat over the past three years and its operating margin has fallen sharply since 2007. Valued at more than 12 times forward earnings and a not-so-cheap six times book value, I'd gladly trade this one in for SK Telecom -- or just about any other large domestic carrier -- in a heartbeat.

Foolish roundup
This week, I offered three companies that, while profitable, aren't exactly leaders in their field, either due to excessive debt, unproven expectations, or a premium valuation relative to their peers. I'm so confident that these three will underperform the S&P 500 going forward that I'm going to make a CAPScall and add them to my CAPS portfolio. The question now: Would you do the same?

Share your thoughts in the comments section below and consider adding Edison International, RAM Energy Resources, and Philippine Long Distance to your free and personalized watchlist to keep up on the latest news with each company.

At the time thisarticle was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He assures you no Californians or Missourians were harmed in the writing of this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google and Philippine Long Distance Telephone. Try any of our Foolish newsletter services free 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 a disclosure policy that never needs to be sold short.

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