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When considering whether to invest in any stock, it is important to understand what is driving the stock price to new heights. Is the buying interest being triggered by strong company fundamentals, solid earnings growth or market rumor and sentiment? In this article I will review five stocks that have recently hit new 52 week price highs due to investor interest, with a view to determining whether they are worth investing in and if they have any future growth prospects. While other stocks have hit 52-week highs recently, these names all represent momentum plays based on their price and volume action. Two are sells and three are buys.

W.W. Grainger Inc (NYSE:GWW)

W.W. Grainger Inc has a market cap of $11.87 billion and a price to earnings ratio of 19.19. Its 52-week trading range is $123.00 to $177.77. At the time of writing, it is trading at around $170. It reported second quarter earnings 2011 of $2.11 billion, an increase from first quarter earnings of $2.00 billion. Second quarter net income was $182.12 million, an increase from first quarter net income of $169.89 million. It has quarterly revenue growth of 11.30%, a return on equity of 27.11% and pays a dividend with a yield of 1.50%.

One of W.W. Grainger’s closest competitors is WESCO International Inc (NYSE:WCC). WESCO International is trading at around $47 and has a market cap of $2.27 billion. It has a price to earnings ratio of 13.15, quarterly revenue growth of 19.30% and a return on equity of 14.81%. It doesn’t pay a dividend. Based on these key performance indicators, both companies are performing on par, although WESCO International is delivering a superior return on equity.

W.W. Grainger’s second-quarter 2011 balance sheet showed cash of $360.66 million, a decrease from first-quarter cash of $465.71 million. It had net tangible assets in the second quarter of $1.99 billion, a decrease from first-quarter net tangible assets of $2.49 billion. Its quarterly revenue growth of 11.30%, versus an industry average of 13.30%, and a return on equity of 27.11% versus an industry average of 17.40%, shows that it is performing on par with many of its competitors.

The earnings outlook for the Wholesale Industrial Equipment industry is negative, primarily due to the poor US economic climate which has lead to a significant decline in demand. This has occurred as demand heavily depends on US manufacturing activity, which has been reduced by the poor economic outlook. However, the devalued US dollar makes US exports more attractive for overseas consumers and this should provide some upside to the industry.

When the poor industry earnings outlook is considered in conjunction with the decrease in cash, decrease in net tangible assets and recent increase in the stock price W.W Grainger does not appear to be a good investment opportunity, despite the solid company’s solid performance indicators. Accordingly, I rate the company as a sell.

Goodrich Corporation (NYSE:GR)

The Goodrich Corporation has a market cap of $15.33 billion and a price to earnings ratio of 21.73. For a 52-week period its trading range has been $79.71 to $123.17. It is currently trading at around $122. The company reported third-quarter earnings for 2011 as $2.03 billion, an increase from second-quarter earnings of $2.00 billion. Second-quarter net income was $201 million, an increase from first-quarter net income of $176.60 million. It has quarterly revenue growth of 16.30%, and a return on equity of 20.27%. It currently pays a dividend with a yield of 0.90%.

One of Goodrich Corporation’s closest competitors is Honeywell International Inc (NYSE:HON). Honeywell currently trades at around $51 and has a market cap of $39.62 billion. It has quarterly revenue growth of 14.20%, a return on equity of 23.34% and pays a dividend with a yield of 2.50%. Based on these performance indicators, both companies are performing on par.

Goodrich Corporation’s cash position has improved, its third-quarter 2011 balance sheet showed $571.80 million in cash, an increase from $518.00 million in the second quarter. Its quarterly revenue growth of 16.30% is less than the industry average of 19.30%, and its return on equity of 20.27% is less than an industry average of 24.10%. Based on these performance indicators, it is underperforming many of its competitors.

The earnings outlook for the Aerospace, Defense Products and Services industry is currently negative as the key driver of revenue growth is spending by the primary customer, the US Government. Currently as the US Department of Defense is seeking to trim down expenditure and reduce its budget this will have a direct flow on effect to the industry.

However, despite the negative earnings outlook for the industry I believe that Goodrich Corporation represents a good investment based upon its increased earnings, improved cash position and solid performance indicators. Accordingly, I rate the company as a buy.

Sunoco Logistics Partners LP Co (NYSE:SXL)

Sunoco Logistics Partners LP Co has a market cap of $3.42 billion with a price to earnings ratio of 13.70. For a 52-week period its trading range has been $73.19 to $100.00. It is currently trading at around $99. The company reported second-quarter earnings 2011 as $2.43 billion, an increase from first-quarter earnings of $2.26 billion. Second-quarter net income was $94 million, a substantial increase from first-quarter net income of $48 million. The company is achieving quarterly revenue growth of 51.70%, currently has no return on equity and pays a dividend with a yield of 5.10%.

One of Sunoco Logistics’ closest competitors is Plains All American Pipeline L.P. (NYSE:PAA). Plains All American Pipeline is currently trading at around $65. It has a market cap of $9.76 billion and a price to earnings ratio of 21.67. It has quarterly revenue growth of 44.70%, a return on equity of 12.83%, and pays a dividend with a yield of 6.00%. Based on these performance indicators, both companies are performing on par, although it is noted that Sunoco Logistics does not currently have a return on equity.

Sunoco Logistics’ cash position has improved: Its second-quarter 2011 balance sheet showed $6 million in cash, an increase from $2 million in the first quarter. Sunoco Logistics’ quarterly revenue growth of 51.70%, versus the industry average of 12.50%, and no return on equity, versus an industry average of 11.30%, indicates that the company is outperforming many of its peers.

The earnings outlook for the Oil and Gas Pipeline industry overall is quite positive and this is being driven by the high demand for oil and gas. When this is combined with the devalued US dollar and better than expected manufacturing sector results, it bodes well for oil and gas suppliers such as Sunoco Logistics.

Based on the positive industry outlook in conjunction with Sunoco Logistics’ increased earnings, substantial increase in net income, solid performance indicators and attractive dividend, I rate the company as a buy.

Allergan Inc (NYSE:AGN)

Allergan Inc has a market cap of $24.87 billion and a price to earnings ratio of 27.88. Its 52-week trading range has been $66.11 to $89.25. It is currently trading at around $82. It reported second-quarter 2011 earnings of $1.42 billion, an increase from first-quarter earnings of $1.27 billion. Second-quarter net income was $246.60 million, a substantial increase from first-quarter net income of $158.30 million. Allergan has quarterly revenue growth of 9.90%, a return on equity of 19.17%, and pays a dividend with a yield of 0.20%.

One of Allergan’s closest competitors is Johnson & Johnson (NYSE:JNJ). Johnson & Johnson currently trades at around $63 and has a market cap of $173.68 billion. It has a price to earnings ratio of 15.46, quarterly revenue growth of 6.80% and doesn’t currently have a return on equity. It pays a dividend with a yield of 3.50%. Based on these performance indicators both companies are performing on par, although Johnson and Johnson pay a far more attractive dividend.

Allergan’s cash position has declined; the second-quarter balance sheet showed $1.86 billion in cash, a substantial decrease from $2.53 billion for the first quarter. Allergan’s quarterly revenue growth of 9.90% is less than the industry average of 32.10%, and its return on equity of 19.17%, is greater than the industry average of 13.40%. This indicates that it is performing on par with many of its competitors, although its growth prospects are not as optimistic as many.

The earnings outlook for companies in the drug manufacturing industry is currently subdued, primarily due to the poor economic climate and negative economic sentiment. Moody’s recently stated; “that many drug manufacturers have found 2011 to be a challenging year, although they have been able to offset declining revenue growth with price increases in the US and revenue from emerging markets.” And they believe that 2012 will be an even more challenging year for industry participants.

Even though the industry outlook is negative, Allergan has solid performance indicators and these have translated into an increase in earnings for the second quarter 2011. On this basis I believe that the current investor interest in Allergan is justified, and I rate the company as a buy.

Rosetta Stone Inc (NYSE:RST)

Rosetta Stone Inc has a market cap of $206.76 billion and doesn’t have a price to earnings ratio. Its 52-week trading range is $8.60 to $24.50. It is currently trading at around $10. It reported second-quarter earnings 2011 of $66.74 million, an increase from first-quarter earnings of $56.98 million. Second quarter net income was -$4.56 million, a substantial increase from first quarter net income of -$9.28 million. Rosetta Stone has quarterly revenue growth of 10.00%, a return on equity of -5.50%, and doesn’t pay a dividend.

It is difficult to develop a profile of Rosetta Stone’s direct competitors, as they are privately owned and the data is not publicly available as it would be for publicly listed companies. However, another industry participant is CA Technologies Inc (NASDAQ:CA). CA Technologies currently trades at around $21 and has a market cap of $10.35 billion. It has a price to earnings ratio of 12.31, quarterly revenue growth of 10.30% and a return on equity of 15.46%. It pays a dividend with a yield of 0.90%. Based on these key performance indicators, CA is outperforming Rosetta Stone, although it is important to note that CA is not a direct competitor and is a far more mature industry participant.

Rosetta Stone’s second-quarter 2011 balance sheet showed cash of $106.88 million, a decrease from first-quarter cash of $112.60 million. Rosetta Stone’s quarterly revenue growth of 10.00%, versus an industry average of 6.40%, and no return on equity, versus an industry average of 4.00%, indicates that it is has weaker growth prospects than many of its competitors.

The earnings outlook for the multimedia and graphic software industry is poor. This is due to the current uncertainty surrounding the economy and the disappointing growth in the jobs market that has affected consumer sentiment.

When Rosetta Stone’s poor performance indicators are considered in conjunction with the decrease in cash holdings and that a number of senior executives, including the CEO, have recently left the company, it indicates that it is a risky investment. On this basis, despite its recent increase in earnings, I rate the company as a sell, due to the uncertainty currently surrounding the company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.