Just when you thought the broad-based S&P 500 was finally going to cool off, we’re right back near an all-time record high, with seven-consecutive up days. 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 footwear giant NIKE, Inc. (NYSE:NKE), for example. Its share price hit a new 52-week high this week on news that it would be moving into the Dow Jones Industrial Average, requiring index funds that track the Dow to purchase Nike stock. Even more than that, in the fourth quarter, it reported that future brand orders were up 8% over the previous year. With little signs of slowing growth and a dominant, well-recognized global brand name, NIKE, Inc. (NYSE:NKE) deserves every bit of its new 52-week high.
Still, other companies might deserve a kick in the pants. Here’s a look at three companies that could be worth selling.
Is this stock Finnish-ed?
I admit to being a big supporter of Nokia Corporation (ADR) (NYSE:NOK) during its dark days, when few analysts figured it would survive, and most had written off its mobile unit for dead. In July 2012, I broke down Nokia’s parts into smaller bits and surveyed their worth, determining that the share price should have been closer to $4 when it was instead trading around $2.
Since that article more than a year ago, Nokia Corporation (ADR) (NYSE:NOK) purchased the full rights to its previously shared networking solutions joint venture with Siemens, and sold off its mobile units, comprised of its Lumia smartphones, to Microsoft for $7.2 billion. The move made sense for both parties, since Microsoft already had an operating system partnership with Nokia for the Lumia, and is desperately trying to diversify its revenue stream beyond PC operating systems, and Nokia, frankly, needed the cash! However, at nearly $6 per share, I feel Nokia Corporation (ADR) (NYSE:NOK)’s run may be coming to an end.
Let’s look at it this way: On the bright side, Nokia Corporation (ADR) (NYSE:NOK) received a gigantic cash infusion, which will support R&D for years to come, and give it some downside protection. On the other hand, although a boom is coming in networking equipment, Nokia’s really not in any shape to take advantage of it. Even if it were, the 53% gain the stock has experienced since announcing the sale of its smartphone unit to Microsoft more than accounts for what strength its networking solutions unit might encounter as wireless service provider infrastructure spending trickles its way down the line.
Obviously, getting back to profitability will be a key for Nokia Corporation (ADR) (NYSE:NOK), and I do believe it eventually can be profitable again. Although, at 40 times next year’s projected profits, I feel now is not the time to be chasing this stock higher, and would stick to the sidelines until it proves otherwise.
A spliced budget
This one is a bit of a tough call because I like the stock and its technology, but it’s also a great reminder never to fall in love with a company. The company in question that’s on the hot seat this week is life science tools and systems maker Illumina, Inc. (NASDAQ:ILMN).