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Discard These 5 Toxic Stocks or Sell Short for Profits
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Successful investing depends upon accurate identification of overpriced toxic stocks and rightly priced ones. However, figuring out the toxic stocks on time and abandoning them to make some profits is not an easy task.
Overblown toxic stocks are usually vulnerable to outside shocks. Additionally, these stocks are burdened with huge debts. The price of toxic stocks is artificially inflated. However, the higher price of toxic stocks is only transitory in nature as it is higher than its true intrinsic value.
Investors may gain from accurate identification of toxic stocks with the help of an investing strategy called short selling. This strategy permits 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, spotting toxic stocks and discarding or short selling them at the right time is the key to protect 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 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 25 toxic stocks that showed up on the screen:
El Segundo, CA-based Mattel, Inc. (MAT - Free Report) is a worldwide leader in the design, manufacture and marketing of toys and family products. Over the past month, the Zacks Consensus Estimate for current-quarter loss has widened from 34 cents per share to 36 cents. The stock currently has a Zacks Rank #5 (Strong Sell).
Norwell, MA-based Clean Harbors, Inc. (CLH - Free Report) is a leading provider of environmental, energy and industrial services in North America. Over the past month, the Zacks Consensus Estimate for current-quarter loss has narrowed from 16 cents per share to 14 cents. The stock currently has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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 22 cents per share to 25 cents. The stock has a Zacks Rank #5.
Kennesaw, GA-based CryoLife, Inc. is a leader in medical device manufacturing and distribution. Over the past month, the Zacks Consensus Estimate for current-quarter earnings changed from 4 cents per share to a loss of 5 cents. The stock currently has a Zacks Rank #4 (Sell).
Houston, TX-based Archrock, Inc. (AROC - Free Report) is a pure-play U.S. natural gas contract compression services company. Over the past month, the Zacks Consensus Estimate for current-quarter earnings has remained at a break-even point. The company carries a Zacks Rank #3.
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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Discard These 5 Toxic Stocks or Sell Short for Profits
Successful investing depends upon accurate identification of overpriced toxic stocks and rightly priced ones. However, figuring out the toxic stocks on time and abandoning them to make some profits is not an easy task.
Overblown toxic stocks are usually vulnerable to outside shocks. Additionally, these stocks are burdened with huge debts. The price of toxic stocks is artificially inflated. However, the higher price of toxic stocks is only transitory in nature as it is higher than its true intrinsic value.
Investors may gain from accurate identification of toxic stocks with the help of an investing strategy called short selling. This strategy permits 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, spotting toxic stocks and discarding or short selling them at the right time is the key to protect 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 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 25 toxic stocks that showed up on the screen:
El Segundo, CA-based Mattel, Inc. (MAT - Free Report) is a worldwide leader in the design, manufacture and marketing of toys and family products. Over the past month, the Zacks Consensus Estimate for current-quarter loss has widened from 34 cents per share to 36 cents. The stock currently has a Zacks Rank #5 (Strong Sell).
Norwell, MA-based Clean Harbors, Inc. (CLH - Free Report) is a leading provider of environmental, energy and industrial services in North America. Over the past month, the Zacks Consensus Estimate for current-quarter loss has narrowed from 16 cents per share to 14 cents. The stock currently has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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 22 cents per share to 25 cents. The stock has a Zacks Rank #5.
Kennesaw, GA-based CryoLife, Inc. is a leader in medical device manufacturing and distribution. Over the past month, the Zacks Consensus Estimate for current-quarter earnings changed from 4 cents per share to a loss of 5 cents. The stock currently has a Zacks Rank #4 (Sell).
Houston, TX-based Archrock, Inc. (AROC - Free Report) is a pure-play U.S. natural gas contract compression services company. Over the past month, the Zacks Consensus Estimate for current-quarter earnings has remained at a break-even point. The company carries a Zacks Rank #3.
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 »