My heart be still... two down days in a row! That still doesn't change the fact that there are still more than 1,000 stocks in the Motley Fool CAPS Screener database (which is more than 20%) within 5% 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 these companies have earned their current valuations.

Keep in mind that some companies deserve their current valuations. Brown-Forman (NYS: BF.B) , the company behind the Jack Daniel's brand name, received an upgrade from UBS yesterday, which cited multiple revenue growth drivers. As for me, I feel the reason behind the company's new 52-week high is its 28 consecutive years of dividend increases.

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


I'd balk at this new high
To me, this looks like a game of chicken that optimists are bound to lose. Pilgrim's Pride (NYS: PPC) , a chicken processor that exited bankruptcy just over two years ago, has been a company rallying on the prospects that things are "less bad" than they were a year ago. And as I've said before, I'll say it again: Buying into a stock because things are less bad than they once appeared is not an investment strategy.

Case in point: Pilgrim's Pride not meeting Wall Street's estimates. The company badly missed EPS estimates in the fourth quarter due to higher soybean and corn costs, as well as weak chicken prices. Its competitor, Tyson Foods (NYS: TSN) , warned that feed costs are headed higher in the upcoming quarters and still reported better-than-expected figures. In fact, Pilgrim's Pride has only been cash flow positive on an annual basis once since 2005. Add to this four consecutive earnings misses -- and I'm not talking small misses, either -- and you have a recipe for what I consider to be overcooked chicken.

Baby steps
You'll often hear me talk about medical device companies in good light since their products are generally increasing in demand, but I'm having a hard time wrapping my optimism around Wright Medical Group (NAS: WMGI) , a provider of orthopedic implants.

For starters, Wright Medical was under investigation by the U.S. Department of Justice a couple of years ago for allegedly entering into paid consulting agreements with orthopedic surgeons to influence them to use Wright's products from 2002 through 2007. Although the company settled, I think the damage has been done. Sales for the fiscal 2011 year fell 1%, while cash flow has declined for two straight years. With the company still working out the kinks from its late-summer restructuring, which involved eliminating 80 jobs, I find it very difficult to stomach a forward P/E of 63. Right now, Wright Medical needs to take baby steps forward to show the Street it's on the right track, and I'm just not seeing it.

What's the return policy?
I was shocked to find out that I had somehow missed adding Gap (NYS: GPS) to my underperformers list prior to today. Gap, a retail chain that I proclaimed as one of my worst companies in the S&P 500, has had so many chances over the past decade to turn its business around but has continued to purchase the wrong merchandise and use deep discounts to rid itself of that unwanted product.

Recently, higher-than-expected same-store sales comparisons have investors invigorated that the worst could be behind it. I'd like to remind everyone that a warmer winter this year has made same-store comparisons against last year's brutal winter on the East Coast almost worthless. I feel that if you give Gap a few months, we'll get a much better picture of where it stands relative to last year, and my guess is it will only be marginally better -- if that! With sales flat over the past decade, I see nothing to be excited about and would return this stock before the 90-day period is up.

Foolish roundup
This week, all three companies have one key problem: a lack of growth. For Pilgrim, costs are crunching its margins; for Wright Medical, it's the overhang of a Justice Department probe; and for Gap, it's the company's inability to know what its customers want. Until these three can figure out a way to grow, I'm going to advocate running in the opposite direction. I'm so confident in my three calls that I plan to make a CAPScall of underperform on each one. The question now 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 owns puts on the SPDR S&P 500 ETF, which attempts to mirror returns on the S&P 500, but has no material interest in any other companies mentioned in this article. You couldn't pay him to go buy something at Old Navy. 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.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.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


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