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4 Toxic Stocks That Don't Deserve a Place in Your Portfolio
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Distinguishing between overpriced and fairly priced stocks is the key to successful investing. But the task is not easy as the correctly priced and overvalued stocks are mingled in a very deceptive way in the marketplace. Investors who can pinpoint the overhyped toxic stocks and discard them at the right time are the ones who are poised to benefit.
Usually, toxic companies are vulnerable to external shocks. These companies are burdened with huge debts too. Also, unjustifiably high price of the toxic stocks is short-lived as their current price exceeds their inherent value. Quite naturally, these stocks are bound to result in loss for investors over time.
Higher price of the toxic stocks can be attributed to either an irrational exuberance associated with them or some serious fundamental lacuna. If you own such stocks for long, you are likely to see a big loss in your wealth.
If you can, however, precisely spot the toxic stocks, you may gain by resorting to an investing strategy called short selling. This strategy allows you 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, just like figuring out stocks with growth potential, identifying toxic stocks and discarding them at the right time is the key to shield your portfolio from big losses or make profits by short selling them.
Screening Criteria
Here is a winning strategy that will help you 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 the current and next fiscal year during the past 12 weeks points to analysts’ pessimism.
Here are four of the 19 stocks that made it through the screen:
TPI Composites, Inc. (TPIC - Free Report) : Headquartered in Arizona, the firm is the manufacturer of composite wind blades for the wind energy market. It operates primarily in the United States, Mexico, China and Turkey. Over the past seven days, the Zacks Consensus Estimate for 2021 loss per share has widened by 6 cents to $1.40. The bottom-line projection indicates a year-over-year plunge of 159%. TPI Composites currently carries a Zacks Rank #5 (Strong Sell) and has a VGM Score of F.
Cameco Corporation (CCJ - Free Report) : Saskatoon-based Cameco is one of the world's largest uranium producers. The company is a notable supplier of conversion services and one of the two CANDU fuel manufacturers in Canada. Over the past 30 days, the Zacks Consensus Estimate for 2021 has deteriorated from earnings of six cents to loss of 16 cents per share. The bottom-line projection indicates a year-over-year decline of 23%. The company currently has a Zacks Rank #5 and a VGM Score of F.
Hexcel Corporation (HXL - Free Report) : Delaware-based Hexcel develops, manufactures and distributes lightweight, high-performance structural materials for use in the Commercial Aerospace, Space & Defense and Industrial markets. Over the past 30 days, the Zacks Consensus Estimate for 2021 earnings has narrowed by 2 cents to 22 cents per share. The consensus mark for sales and earnings for the current year implies a year-over-year decline of 10.5% and 12%, respectively. The company currently has a Zacks Rank #4 (Sell) and a VGM Score of C.
Viad Corp (VVI - Free Report) : Arizona-based Viad is an experiential services company with operations in the United States, Canada, the United Kingdom, continental Europe and United Arab Emirates. The Zacks Consensus Estimate for sales for the current year implies a year-over-year decline of 22.5%. The bottom-line projection for 2021 is pegged at a loss of $2.24 per share. The company currently has a Zacks Rank #4 and 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.
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4 Toxic Stocks That Don't Deserve a Place in Your Portfolio
Distinguishing between overpriced and fairly priced stocks is the key to successful investing. But the task is not easy as the correctly priced and overvalued stocks are mingled in a very deceptive way in the marketplace. Investors who can pinpoint the overhyped toxic stocks and discard them at the right time are the ones who are poised to benefit.
Usually, toxic companies are vulnerable to external shocks. These companies are burdened with huge debts too. Also, unjustifiably high price of the toxic stocks is short-lived as their current price exceeds their inherent value. Quite naturally, these stocks are bound to result in loss for investors over time.
Higher price of the toxic stocks can be attributed to either an irrational exuberance associated with them or some serious fundamental lacuna. If you own such stocks for long, you are likely to see a big loss in your wealth.
If you can, however, precisely spot the toxic stocks, you may gain by resorting to an investing strategy called short selling. This strategy allows you 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, just like figuring out stocks with growth potential, identifying toxic stocks and discarding them at the right time is the key to shield your portfolio from big losses or make profits by short selling them.
Screening Criteria
Here is a winning strategy that will help you 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 the current and 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.
Here are four of the 19 stocks that made it through the screen:
TPI Composites, Inc. (TPIC - Free Report) : Headquartered in Arizona, the firm is the manufacturer of composite wind blades for the wind energy market. It operates primarily in the United States, Mexico, China and Turkey. Over the past seven days, the Zacks Consensus Estimate for 2021 loss per share has widened by 6 cents to $1.40. The bottom-line projection indicates a year-over-year plunge of 159%. TPI Composites currently carries a Zacks Rank #5 (Strong Sell) and has a VGM Score of F.
Cameco Corporation (CCJ - Free Report) : Saskatoon-based Cameco is one of the world's largest uranium producers. The company is a notable supplier of conversion services and one of the two CANDU fuel manufacturers in Canada. Over the past 30 days, the Zacks Consensus Estimate for 2021 has deteriorated from earnings of six cents to loss of 16 cents per share. The bottom-line projection indicates a year-over-year decline of 23%. The company currently has a Zacks Rank #5 and a VGM Score of F.
Hexcel Corporation (HXL - Free Report) : Delaware-based Hexcel develops, manufactures and distributes lightweight, high-performance structural materials for use in the Commercial Aerospace, Space & Defense and Industrial markets. Over the past 30 days, the Zacks Consensus Estimate for 2021 earnings has narrowed by 2 cents to 22 cents per share. The consensus mark for sales and earnings for the current year implies a year-over-year decline of 10.5% and 12%, respectively. The company currently has a Zacks Rank #4 (Sell) and a VGM Score of C.
Viad Corp (VVI - Free Report) : Arizona-based Viad is an experiential services company with operations in the United States, Canada, the United Kingdom, continental Europe and United Arab Emirates. The Zacks Consensus Estimate for sales for the current year implies a year-over-year decline of 22.5%. The bottom-line projection for 2021 is pegged at a loss of $2.24 per share. The company currently has a Zacks Rank #4 and 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