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5 Toxic Stocks to Abandon or Sell Short for Profits
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Investing success depends upon proper identification of overhyped toxic stocks and the correctly priced ones. However, spotting toxic stocks on time and discarding them to make profit is not an easy task.
Overpriced toxic stocks are generally susceptible to external shocks. Additionally, these stocks are loaded with huge debts. The price of the toxic stocks is artificially inflated. However, the higher price of toxic stocks is only short-term in nature as it exceeds its true intrinsic value.
Investors may profit from proper 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, identifying toxic stocks and abandoning or short selling them at the right time is the key to shield 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 19 toxic stocks that showed up on the screen:
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 remained unchanged at 25 cents per share. The stock has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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 remained unchanged at 31 cents per share. The stock currently has a Zacks Rank #3.
Leawood, KS-based AMC Entertainment Holdings, Inc. (AMC - Free Report) is engaged in the theatrical exhibition business. Over the past seven days, the Zacks Consensus Estimate for current quarter earnings remained unchanged at 8 cents per share. The stock currently has a Zacks Rank #3.
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 35 cents per share to 36 cents. The stock currently has a Zacks Rank #5 (Strong Sell).
Covanta Holding Corporation is a Morristown, NJ-based alternative energy company that provides waste and energy services in the United States and Canada. In the past 30 days, the Zacks Consensus Estimate for the current quarter loss widened from 20 cents per share to 21 cents. The company has 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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5 Toxic Stocks to Abandon or Sell Short for Profits
Investing success depends upon proper identification of overhyped toxic stocks and the correctly priced ones. However, spotting toxic stocks on time and discarding them to make profit is not an easy task.
Overpriced toxic stocks are generally susceptible to external shocks. Additionally, these stocks are loaded with huge debts. The price of the toxic stocks is artificially inflated. However, the higher price of toxic stocks is only short-term in nature as it exceeds its true intrinsic value.
Investors may profit from proper 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, identifying toxic stocks and abandoning or short selling them at the right time is the key to shield 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 19 toxic stocks that showed up on the screen:
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 remained unchanged at 25 cents per share. The stock has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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 remained unchanged at 31 cents per share. The stock currently has a Zacks Rank #3.
Leawood, KS-based AMC Entertainment Holdings, Inc. (AMC - Free Report) is engaged in the theatrical exhibition business. Over the past seven days, the Zacks Consensus Estimate for current quarter earnings remained unchanged at 8 cents per share. The stock currently has a Zacks Rank #3.
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 35 cents per share to 36 cents. The stock currently has a Zacks Rank #5 (Strong Sell).
Covanta Holding Corporation is a Morristown, NJ-based alternative energy company that provides waste and energy services in the United States and Canada. In the past 30 days, the Zacks Consensus Estimate for the current quarter loss widened from 20 cents per share to 21 cents. The company has 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 »