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Get Rid of 5 Toxic Stocks or Sell Short for Profit
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Accurate identification of overhyped toxic stocks and the rightly priced ones is very important for investing success. However, correctly figuring out toxic stocks and removing them at the right time to make some profits is not easy.
Overblown toxic stocks are usually susceptible to external shocks. Also, these stocks are burdened with a huge amount of debt. Price of these toxic stocks is unrealistically high. However, the high price of the toxic stocks is only short lived as it is higher than its intrinsic value.
Investors may gain from the correct identification of toxic stocks with the help of an investing strategy known as short selling. This strategy allows them 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, spotting toxic stocks and throwing them away at the right time is the key to guard your portfolio from big losses. Profits can be made by short selling them.
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 0: 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.
Here are five of the 18 toxic stocks that showed up on the screen:
Bethpage, NY-based Altice USA, Inc. (ATUS - Free Report) is a leading broadband communications and video services provider in the United States. In the past 30 days, the Zacks Consensus Estimate for the current quarter has remained unchanged at a loss of a penny. The company has a Zacks Rank #4 (Sell).
Houston, TX-based Archrock, Inc. (AROC - Free Report) is a pure-play US natural gas contract compression services company. Over the past month, the Zacks Consensus Estimate for current quarter loss has remained unchanged at a loss of 3 cents per share. The company carries a Zacks Rank #4.
Live Nation Entertainment, Inc. (LYV - Free Report) is a Beverly Hills, CA-based live entertainment company. Over the past month, the Zacks Consensus Estimate for current quarter loss has widened from 80 cents per share to $1.05. The stock has a Zacks Rank #4.
PTC Inc. (PTC - Free Report) is a Needham, MA-based software company engaged in developing, marketing and supporting software solutions. Over the past month, the Zacks Consensus Estimate for current quarter earnings has remained unchanged at 31 cents per share. The stock has a Zacks Rank #4.
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 backtesting 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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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Get Rid of 5 Toxic Stocks or Sell Short for Profit
Accurate identification of overhyped toxic stocks and the rightly priced ones is very important for investing success. However, correctly figuring out toxic stocks and removing them at the right time to make some profits is not easy.
Overblown toxic stocks are usually susceptible to external shocks. Also, these stocks are burdened with a huge amount of debt. Price of these toxic stocks is unrealistically high. However, the high price of the toxic stocks is only short lived as it is higher than its intrinsic value.
Investors may gain from the correct identification of toxic stocks with the help of an investing strategy known as short selling. This strategy allows them 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, spotting toxic stocks and throwing them away at the right time is the key to guard your portfolio from big losses. Profits can be made by short selling them.
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 0: 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.
Here are five of the 18 toxic stocks that showed up on the screen:
Wilmington, DE-based Incyte Corporation (INCY - Free Report) is a drug discovery company. Over the past month, the Zacks Consensus Estimate for current quarter loss has narrowed from 14 cents per share to 5 cents. Incyte carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Bethpage, NY-based Altice USA, Inc. (ATUS - Free Report) is a leading broadband communications and video services provider in the United States. In the past 30 days, the Zacks Consensus Estimate for the current quarter has remained unchanged at a loss of a penny. The company has a Zacks Rank #4 (Sell).
Houston, TX-based Archrock, Inc. (AROC - Free Report) is a pure-play US natural gas contract compression services company. Over the past month, the Zacks Consensus Estimate for current quarter loss has remained unchanged at a loss of 3 cents per share. The company carries a Zacks Rank #4.
Live Nation Entertainment, Inc. (LYV - Free Report) is a Beverly Hills, CA-based live entertainment company. Over the past month, the Zacks Consensus Estimate for current quarter loss has widened from 80 cents per share to $1.05. The stock has a Zacks Rank #4.
PTC Inc. (PTC - Free Report) is a Needham, MA-based software company engaged in developing, marketing and supporting software solutions. Over the past month, the Zacks Consensus Estimate for current quarter earnings has remained unchanged at 31 cents per share. The stock has a Zacks Rank #4.
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 backtesting 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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »