So much for a correction! The broad-based S&P 500 has now traded higher in nine of the past 11 trading sessions in spite of mounting economic data that would suggest anything but optimism. 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. Cisco Systems, Inc. (NASDAQ:CSCO) is a great example of a company long overdue for a new 52-week high. Networking equipment makers like Cisco Systems, Inc. (NASDAQ:CSCO) are set to benefit in a big way for a capital expenditures boom from wireless service providers that’s starting to work its way down the line to infrastructure providers. With Cisco Systems, Inc. (NASDAQ:CSCO) boosting its dividend by another 21% in March and sitting on $31.1 billion in net cash, the sky could be the limit.
Still, other companies might deserve a kick in the pants. Here’s a look at three companies that could be worth selling.
No fairytale ending
Fairytale endings work great in the movies, but you rarely see them come to fruition in the real world. Small-cap biopharmaceutical Inovio Pharmaceuticals Inc (NYSEMKT:INO) has seen shares nearly triple since April on the heels of multiple intriguing studies, but will the glass slipper fit over the long term?
Earlier this week, Inovio Pharmaceuticals Inc (NYSEMKT:INO) released data from a study of its universal H7N9 vaccine that demonstrated 100% protection in vaccinated animals. Also, just yesterday, Inovio released the results of a study involving its Cellectra electroporation delivery technology, which improved response rates for its next-generation HIV vaccine to 52% from 7% in terms of CD8 T-cell response rates.
I’m not planning to take a thing away from Inovio Pharmaceuticals Inc (NYSEMKT:INO) here, as these are important and solid results. Shareholders, though, are doing themselves a disservice by ignoring other aspects that I feel make Inovio much more of a risk than these results might indicate.
To begin with, having a vaccine that works in animals is no guarantee it’ll be safe and effective in humans. To that end, even getting a vaccine approved for H7N9 doesn’t mean it’ll be profitable, as governments around the globe would need to buy a lot of the product to make it worthwhile. With a better understanding of how to quarantine infectious diseases nowadays, an H7N9 vaccine may not be a big moneymaker for Inovio Pharmaceuticals Inc (NYSEMKT:INO). It’s also not the only fish in the pond researching for a vaccine, either.
The other aspect to consider here is Inovio Pharmaceuticals Inc (NYSEMKT:INO)’s history. Despite being founded 30 years ago, there isn’t a whole lot to show for it other than an accumulated deficit of $238.6 million as of its latest quarter. To add to that, it’s funded its business with countless dilutive share offerings and warrants, which have increased the number of outstanding shares from approximately 13 million in 2003 to a whopping 156 million as of the first quarter of 2013. Inovio has had shareholders’ hopes up before and it’s crushed them every time. I’m not sure how this time will be any different, and I’d suggest keeping your distance.
A stock you can sell right now
When in doubt, I can always turn to my tried-and-true TMFULOI metric to point out the market’s most overvalued companies. Earlier this month I ran such a screen and Russian search engine giant Yandex NV (NASDAQ:YNDX) popped up near the top of my list.
Yandex NV (NASDAQ:YNDX) has plenty going for it, including dominant market share in Russia, a country with rapid growth potential and a middle class that’s seeing their wealth expand. Yandex is already profitable – which is better than some of its peers can say — and it grew revenue by 36% in its most recent quarter. Yet I see plenty of reasons to believe its next move could be significantly lower.
One factor I mentioned earlier this month is the fluctuation potential of the Russian ruble. Being practically worthless in the early 1990s, the Russian ruble is one of the more volatile currencies around the globe and can negatively impact Yandex’s bottom line if it takes another serious dive.