Greece goes to the polls again, Spain's 10-year borrowing rate cracks 7%, and investor confidence in Germany falls, yet the U.S. indexes still head higher. 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. SXC Health Solutions (NAS: SXCI) is still riding high following news in April that it plans to buy Catalyst Health Solutions for $4.4 billion in cash, stock, and debt. It got another bump from its earnings report in May, when it announced a 44% jump in profits and a 56% rise in revenue from its pharmacy-benefit management and information technologies operations in the health-care sector.

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


Are you sure these aren't opiates?
Pacira Pharmaceuticals
(NAS: PCRX) has been rallying steadily since it launched Exparel, a postsurgical pain management drug, in April. Considering there are roughly 70 million surgeries performed in the United States annually, and about 5 million of those use bupivacaine (a component of Exparel), the estimated market for such a drug is close to $40 million annually -- at least according to drugdevelopment-technology.com.

While that's a fantastic start for Pacira, and great news for postoperative patients, it doesn't get the company anywhere near profitability, nor does it successfully guarantee the company an easy drug launch.

Since going public, Pacira has drowned its shareholders with secondary offerings. As of the end of its most recent fiscal year, total shares outstanding stood at 16 million; now they are in excess of 32 million. Expenses are also expected to rise, as Pacira will need to pay for sales and marketing costs associated with Exparel. It's a simple numbers game: until Pacira can reduce the magnitude of its cash outflow, it's just not worth getting too excited over.

Carol Ann, don't go into the light!
It might be difficult to tell, but ultraviolet light source manufacturer Cymer (NAS: CYMI) , whose products are used by chip makers to produce advanced semiconductor devices, is just exiting its "seasonally slow" time of the year.

Cymer has benefited from extremely low effective tax rates, one-time gains, and recent strength in the overall semiconductor industry to move to new highs. This sectorwide strength was confirmed in May when Applied Materials (NAS: AMAT) noted that its foundry equipment business orders remained robust. Despite this, there are notable warning signs that signify Cymer's run may be very close to an end.

Its first-quarter earnings released in late April showed that EPS fell 28% year over year as sales slumped by 3%. The scary thing is that its results were actually helped this past quarter by one-time tax benefits! The big culprit, however, was research and development costs, which rose nearly $15 million over the prior year. Wall Street's estimates, according to the seven analysts covering the stock at Yahoo! Finance, also dropped dramatically following that report even as the share price hardly budged. Being valued at 28 times forward earnings seems to me a rich price to pay for a company that can't control its expenses and is struggling through a period of flat sales growth.

Climbing a slippery slope
WD-40
(NAS: WDFC) is this week's reminder that not all sell candidates are bad companies -- some just aren't priced appropriately relative to the market.

The maker of lubricants and household cleaning products cleaned up in the second quarter by reporting a 23% increase in earnings on a 9% rise in sales. However, what concerns me about WD-40 is the company's reliance on the health of the global economy to drive sales growth.

The latest breakdown of its sales shows that 51% and 34% of its sales came from the Americas and Europe -- two areas that are notably struggling -- while only 15% was from Asia. In addition, WD-40 has missed Wall Street's estimates in two of the past four quarters as it has dealt with higher oil-based materials costs. Even with the price of oil falling recently, I'm not sure that provides an immediate relief for the company's bottom line. Simply put, I don't see how WD-40, even with its strong cash flow, will outperform the overall market going forward when it's so intricately tied to the world's most troubled regions.

Foolish roundup
This would have been the perfect week to have made myself a "prove it" stamp. The three companies that made this week's cut aren't necessarily bad companies so much as they need to prove their worth. Pacira needs to prove it can successfully launch Exparel, Cymer needs to prove it can control its costs, and WD-40 needs to prove that it can consistently grow its bottom line in Europe and the United States.

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!

The article 3 Stocks Near 52-Week Highs Worth Selling originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He strongly believes WD-40 or duct tape can fix anything around your house. 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 SXC Health Solutions. Motley Fool newsletter services have recommended buying shares of SXC Health Solutions. 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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