3 Stocks Near 52-Week Highs Worth Selling
European worries huffed and puffed, but they haven't quite blown down bullish investors' optimistic views of the market just yet. For optimists, these rallies may seem like a dream come true. For skeptics like me, they're opportunities to see whether companies have earned their current valuations.
Keep in mind that some companies deserve their current valuations. Conglomerate Berkshire Hathaway has held up remarkably well in light of recent weakness because of its diverse portfolio of businesses and prudent fiscal management. It seems that Warren Buffett guy may know a thing or two after all.
Still, other companies might deserve a kick in the pants. Here's a look at three companies that could be worth selling.
Snow way I'm buying this
For most businesses, when you want to add more revenue to the bottom line, you simply make more of a certain product or expand your product line. When your company is Vail Resorts (NYS: MTN) , however, making more snow isn't exactly a realistic option.
After limping through what Vail's CEO Rob Katz described as "the most challenging winter in the history of the United States ski industry," Vail shares have been using the ski lift to ascend to within reach of its highs. Despite the lackluster snow, Vail's mountain revenue ticked up 0.9% even though skier traffic declined by nearly 10% as it was able to raise prices to counteract fewer visits. Some investors see this as a sign of strong pricing power; personally, I see this as one step closer to angering its customer base.
If I've learned anything from companies that are dependent on the weather, it's that you can't predict weather with any accuracy. There are no guarantees Vail's future winters will be better or worse than what it just experienced, but I can say with some certainty that skiers won't be so accepting of future price hikes next year, as I'm already seeing signs of discretionary spending weakening globally. At a whopping 41 times forward earnings, I'd consider jumping off the lift before Vail goes tumbling down the proverbial mountain.
Buried by foreclosures
The last five years have been one nightmare after another for national and regional banks. A credit crisis and the bursting housing market plagued many banks' portfolios for years, with many just starting to come around. For TFS Financial (NAS: TFSL) , a holding company whose subsidiaries provide banking services in Ohio and Florida, that "coming around" process might need a few more years.
TFS' recent earnings report will actually seem optimistic to many investors because it was laden with subtle bright spots: Delinquency rates were down, net interest income was up 8%, and total assets rose by 4% to $11.29 billion. But the key remarks that should be seared into investors' brains came from CEO Marc Stefanski, who said, "The ongoing instability in the housing market still affects our loan loss provision."
In the latest quarter, loan-loss reserves jumped dramatically to $27 million from $15 million last quarter, and $22.5 million in the year-ago period. The rapid rise in charge-offs relates to a decrease in property values stemming from the rise in short-sales and foreclosures that I noted just days ago. This is the roundabout way of a CEO warning his shareholders that rough times could still be ahead. That's not what I want to hear from a regional bank that's turning very marginal quarterly profits, at best. I'd suggest letting this turnaround continue without your money in TFS Financial's stock.
The balloon is ready to burst
Deep down, most of us understand that investing in U.S. Treasury bonds isn't a smart move right now, even though you get a fairly safe, positive nominal return. The problem is that investors have lined up in droves to buy up these bonds to the point that the yield you receive from owning the bond is considerably less than the rate of inflation. In even simpler English, the money you make won't keep pace with the rising price of the things you buy. That's simply an unsustainable investment and the reason why the Direxion Daily 30-Year Treasury 3X ETF (NYS: TMF) is the latest triple-levered destructor of wealth to appear in this series.
Bonds have been in a 30-year bull market, but betting they'll rise even further is like trying to squeeze blood out of a turnip. As with all triple-levered ETFs, you'll get no dividend, you'll lose money to daily rebalancing activities, and you need an almost constant move in your favor to turn a profit. Do yourself a favor and ditch these triple-levered equities for good!
No secret to this week's three sell candidates; with no snow, no housing rebound, and little chance of bond prices heading higher, all three stocks earn an avoid rating from me. I'm so confident in my three calls that I plan to make a CAPScall of underperform on each one. The question is: Would you do the same?
Share your thoughts in the comments section below and consider using the following links to add these three stocks to your free and personalized watchlist so you can keep track of the latest news on each company. And to avoid investing in stocks like these, consider getting a copy of our special report, "The Motley Fool's Top Stock for 2012." In it, our chief investment officer details a play he dubbed the "Costco of Latin America." Best of all, this report is free for a limited time, so don't miss out!
At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He has yet to ever try skiing. 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 Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. 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.