A minor correction in the indexes appears to have put a dent in the list of new 52-week highs, but don't think for a moment there aren't stocks still headed for the stratosphere. 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. Fertilizer company Terra Nitrogen (NYS: TNH) is rocketing to new highs, not necessarily on higher fertilizer sales, but on considerably better margins. Since Terra Nitrogen's ammonia-based product line is derived from natural gas, and natural-gas prices hit lows not seen since 2001, its profit margin appears likely to head even higher.

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


Is this a trend?
It seems everyone in the retail sector wants to blame the weather when their results aren't up to par, but the weather is the last thing on anyone's mind when retail stocks are performing better than expected. Let me again remind everyone that the majority of mall-based retailers are up against ridiculously low same-store comparisons in the year-ago period because of a particularly harsh winter last year. This isn't a true indication of the health of the retail sector, and it definitely doesn't constitute a reason to be bullish about mall-owning REIT Macerich (NYS: MAC) .

Recent data signaled that U.S. mall vacancy rates are falling for the first time in seven years. But are two quarters really a trend after seven years of heading in the wrong direction? I don't think so. These REITs are going to have to be careful about how quickly they attempt to boost rent prices, because retailers are just months away from what I suspect will be a dose of reality. I personally don't see how it would be prudent to pay 53 times forward earnings and 32 times cash flow for Macerich.

Not feeling charmed
Charming Shoppes
(NAS: CHRS) has been anything but alluring over the past couple of years. The clothing retailer has seen sales slump for five consecutive years and hasn't turned an annual profit since 2007. Admittedly, the stock became cheap relative to analysts' price targets in September of last year, but there's a fine line to walk between being cheap relative to what analysts say and being unable to generate growth.

The sad truth is, based on estimates found at Yahoo! Finance, Charming Shoppes is expected to see another 1% decline in sales this year and is projected to grow annually at a paltry 2% over the next five years. The company's decline can be attributed to both rising costs and its stubborn insistence for years on sticking to annual styles and ignoring seasonal products. Its Lane Bryant locations are making an effort to bring in more seasonal products, but call me unconvinced that a turnaround is under way here just yet. Where's the growth, Charming Shoppes?

If you've got an issue, here's a tissue
I'm usually a big fan of consumer staple conglomerates because they significantly reduce portfolio volatility, they're often profitable regardless of the state of the economy, and most pay a dividend. Today, however, I'm going to advocate swapping Church & Dwight (NYS: CHD) for one of its peers.

The main driver here is valuation. Procter & Gamble (NYS: PG) and Clorox offer similar growth prospects to Church & Dwight in the cleaning products space, but they do so with a forward earnings multiple that is some 15% to 20% lower than Church & Dwight's. Both companies also trade at about a 10% discount to cash flow. But the most defining factor that entices me is that Church & Dwight's dividend yield is just 2%, while P&G and Clorox offer yields of 3.2% and 3.5%, respectively. C&D isn't your normal-caliber sell candidate because it is a solid company; it's just valued a bit ahead of itself right now, and I'd swap it for one of its peers.

Foolish roundup
I'm going to refer to this as the "show-me" week (sorry for stealing your motto, Missouri). I need Macerich and Charming Shoppes to show me that their recent trends aren't a fluke before I'll take them out of the penalty box, and Church & Dwight needs to show me why it should trade at a higher multiple than P&G or Clorox. 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 has no material interest in any companies mentioned in this article. He considers himself to be quite charming, though I'm sure some people would think otherwise. 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.Motley Fool newsletter services have recommended buying shares of Procter & Gamble. 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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