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Don't Squander Your Income on These 3 Toxic Stocks
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Proper identification of rightly-priced stocks is the key to successful investing. In reality, overpriced toxic stocks and the rightly-priced stocks are intertwined in such a manner that it is difficult to distinguish between the two. Investors who know how to identify toxic stocks and get rid of those at the right time see success in the end.
Usually, overhyped toxic stocks are vulnerable to external shocks. These stocks are also loaded with a huge amount of debt. The price of these stocks is artificially inflated. Nonetheless, the higher price of toxic stocks is only transitory in nature as it is more than its true intrinsic value. Toward the end, we have highlighted three of the 24 toxic stocks that showed up on the screen. These are Illumina Inc. (ILMN - Free Report) , Tactile Systems Technology (TCMD - Free Report) and Stoneridge (SRI - Free Report) .
Investors are likely to gain from precise identification of toxic stocks with the help of an investing strategy called short selling. This strategy allows investors to sell a stock first and then buy it when the price falls. While short selling excels in bear markets, it typically loses money in bull markets. So, precisely figuring out the toxic stocks and discarding or short selling those at the right time is the key to safeguarding your portfolio from big losses.
Screening Criteria
Here is a winning strategy that will help you to identify overpriced toxic stocks:
Most recent Debt/Equity Ratio greater than the median industry average: High debt/equity ratio implies high leverage. High leverage indicates a huge level of repayment that the company has to make in connection with the debt amount.
P/E using 12-month forward EPS estimate greater than 50: A very high forward P/E implies that a stock is highly overvalued.
% Change in F (1) and F (2) Estimate (12 Weeks) less than -5: Negative EPS estimate revision for this and the next fiscal year during the past 12 weeks points to analysts’ pessimism.
Illumina: San Diego-based Illumina is a life sciences company that provides tools and integrated systems for analysis of genetic variation and function. Using proprietary technologies, the company provides innovative sequencing- and array-based solutions for genotyping, copy number variation analysis, methylation studies, and gene expression profiling of DNA and RNA.
The Zacks Consensus Estimate for Illumina’s 2022 earnings per share implies a year-over-year decline of 27.7%. The consensus mark for the next year has been revised 20.4% downward over the past 30 days. ILMN currently carries a Zacks Rank #5 (Strong Sell) and has a VGM Score of F.
Tactile Systems: Headquartered in Minneapolis, Tactile Systems is a medical technology company that develops medical devices for the treatment of chronic diseases at home. The company's product pipeline consists of the Flexitouch System, Entré System and ACTitouch System.
The Zacks Consensus Estimate for Tactile System’s 2021 bottom line implies a year-over-year decline of 300%. The consensus mark for the current year has deteriorated from earnings per share of 45 cents to a loss per share of 12 cents over the past 30 days. TCMD currently carries a Zacks Rank #5 and has a VGM Score of D.
Stoneridge: Michigan-based Stoneridge is an independent designer and manufacturer of highly engineered electrical and electronic components, modules and systems for the automotive, medium and heavy-duty trucks, and agricultural vehicle markets.
The Zacks Consensus Estimate for Stoneridge’s 2021 loss implies a year-over-year deterioration of 1,996.7%. The consensus mark for loss for the current year has widened from 26 cents per share to 62 cents over the past 30 days. SRI currently carries a Zacks Rank #5 and has a VGM Score of F.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back-testing software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Image: Shutterstock
Don't Squander Your Income on These 3 Toxic Stocks
Proper identification of rightly-priced stocks is the key to successful investing. In reality, overpriced toxic stocks and the rightly-priced stocks are intertwined in such a manner that it is difficult to distinguish between the two. Investors who know how to identify toxic stocks and get rid of those at the right time see success in the end.
Usually, overhyped toxic stocks are vulnerable to external shocks. These stocks are also loaded with a huge amount of debt. The price of these stocks is artificially inflated. Nonetheless, the higher price of toxic stocks is only transitory in nature as it is more than its true intrinsic value. Toward the end, we have highlighted three of the 24 toxic stocks that showed up on the screen. These are Illumina Inc. (ILMN - Free Report) , Tactile Systems Technology (TCMD - Free Report) and Stoneridge (SRI - Free Report) .
Investors are likely to gain from precise identification of toxic stocks with the help of an investing strategy called short selling. This strategy allows investors to sell a stock first and then buy it when the price falls. While short selling excels in bear markets, it typically loses money in bull markets. So, precisely figuring out the toxic stocks and discarding or short selling those at the right time is the key to safeguarding your portfolio from big losses.
Screening Criteria
Here is a winning strategy that will help you to identify overpriced toxic stocks:
Most recent Debt/Equity Ratio greater than the median industry average: High debt/equity ratio implies high leverage. High leverage indicates a huge level of repayment that the company has to make in connection with the debt amount.
P/E using 12-month forward EPS estimate greater than 50: A very high forward P/E implies that a stock is highly overvalued.
% Change in F (1) and F (2) Estimate (12 Weeks) less than -5: Negative EPS estimate revision for this and the next fiscal year during the past 12 weeks points to analysts’ pessimism.
Zacks Rank more than or equal to #3 (Hold): We have not considered Buy-rated stocks that generally outperform the market. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Time to Dump ILMN, TCMD & SRI
Illumina: San Diego-based Illumina is a life sciences company that provides tools and integrated systems for analysis of genetic variation and function. Using proprietary technologies, the company provides innovative sequencing- and array-based solutions for genotyping, copy number variation analysis, methylation studies, and gene expression profiling of DNA and RNA.
The Zacks Consensus Estimate for Illumina’s 2022 earnings per share implies a year-over-year decline of 27.7%. The consensus mark for the next year has been revised 20.4% downward over the past 30 days. ILMN currently carries a Zacks Rank #5 (Strong Sell) and has a VGM Score of F.
Tactile Systems: Headquartered in Minneapolis, Tactile Systems is a medical technology company that develops medical devices for the treatment of chronic diseases at home. The company's product pipeline consists of the Flexitouch System, Entré System and ACTitouch System.
The Zacks Consensus Estimate for Tactile System’s 2021 bottom line implies a year-over-year decline of 300%. The consensus mark for the current year has deteriorated from earnings per share of 45 cents to a loss per share of 12 cents over the past 30 days. TCMD currently carries a Zacks Rank #5 and has a VGM Score of D.
Stoneridge: Michigan-based Stoneridge is an independent designer and manufacturer of highly engineered electrical and electronic components, modules and systems for the automotive, medium and heavy-duty trucks, and agricultural vehicle markets.
The Zacks Consensus Estimate for Stoneridge’s 2021 loss implies a year-over-year deterioration of 1,996.7%. The consensus mark for loss for the current year has widened from 26 cents per share to 62 cents over the past 30 days. SRI currently carries a Zacks Rank #5 and has a VGM Score of F.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back-testing software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance