Commodities may be in the midst of a nasty sell-off, and worries about Cyprus’ financial ripples continue to persist, yet 2,300 of 4,800 companies in The Motley Fool CAPS Screener database are still within 10% of a new 52-week high. For skeptics like me, that’s an opportunity to see whether companies have earned their current valuations.
Keep in mind that some companies deserve their current valuations. Take The Coca-Cola Company (NYSE:KO), for example, which reported better-than-expected first-quarter results earlier this week as global volume jumped 4%. It also announced a restructuring of its U.S. bottling business in an effort to improve quality and efficiency. This is just another reason you don’t bet against what is, according to Interbrand, the most valuable brand in the world.
Still, other companies might deserve a kick in the pants. Here’s a look at three companies that could be worth selling.
Beware of choppy waters
I freely admit that I have a predisposition that simply will not allow me to like the amusement park sector. I’ve previously featured Six Flags Entertainment Corp (NYSE:SIX) in my CAPScall series because of the incredible amount of cyclicality associated with the business and its relatively high debt levels. Today, I have a new company to add to the list: Cedar Fair, L.P. (NYSE:FUN).
Cedar Fair, L.P. (NYSE:FUN) — aptly tickered “FUN” — is a water-park operator in North America and Canada, and also owns five hotels. The allure is pretty simple — a 6% yield and three straight years of record revenue and adjusted EBITDA. The reasons to avoid seem even clearer to me.
To begin with, at least standard amusement parks can be operated year-round. Water-themed parks have such a short time frame when they are usable each year because they’re entirely dependent on the weather and/or geographic region they operate in (unless it’s an entirely indoor theme park). Second, maintenance, research and development, and new additions cost an arm and a leg, which has put Cedar Fair under a mountain of debt — $1.56 billion, to be exact. Finally, I don’t feel that current Wall Street estimates are factoring in elevated payroll taxes or the soon-to-be-enacted Patient Protection and Affordable Care Act, which could reduce consumers’ take home pay and leisure budget.
My advice here would be to be wary of choppy waters in the quarters ahead.
Captain, I just don’t have the infrastructure!
Without question, car companies are on a quest to create the perfect blend of performance, fuel-efficiency, and zero emissions. At the moment, only one company has done a good job of that, and its name is Tesla Motors Inc (NASDAQ:TSLA). But looking at the big picture, the electric vehicles that Tesla Motors Inc (NASDAQ:TSLA)produces make up just a fraction of the current automotive market. The real barrier to entry for any alternative modes of transportation is a lack of infrastructure, which is why I think the recent rally in ECOtality Inc (NASDAQ:ECTY) is unwarranted.
ECOtality Inc (NASDAQ:ECTY) offers EV charging stations under its Blink brand, as well as other EV technologies. Revenue for 2012 jumped 93% for the full year to $54.7 million as it drastically boosted the rollout of its Blink charging stations. However, as you might expect with the rollout of a network of EV charging stations, expenses are rising and the company is still very much in the red. Although its net loss shrank by 67% in 2012, it still lost $0.40 per share.
This is the kind of story that could have merit perhaps a decade from now when EVs play a bigger role on the road. At the moment, with Tesla Motors Inc (NASDAQ:TSLA) providing what seems like the only meaningful EV contribution, I can’t see there being enough demand to drive ECOtality into the black — even if it focuses on commercial and industrial customers. Furthermore, ECOtality ended the quarter with only $1.9 million in cash on hand and has consistently delivered negative free cash flow. This is not a recipe for success!