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Distance Yourself From These 4 Toxic Stocks to Ward Off Losses
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Amid fears of the Fed’s hawkish stance and economic uncertainty, major U.S. indices witnessed sharp corrections yesterday. The S&P 500 fell 2.13% yesterday to mark the worst trading day since mid-June. Severe bouts of volatility are expected in the near term amid geopolitical tensions and inflation concerns.
In times of such uncertainty, it’s as important to get rid of fundamentally weak toxic stocks as it is to invest in attractively valued companies possessing fundamental strength. An ill-informed investor can lose big if he stays invested in toxic stocks. So, to guard your portfolio against big losses, get rid of the toxic stocks before it’s too late.
Usually, toxic stocks are fraught with huge debt loads and are susceptible to external shocks. The price of toxic stocks is unreasonably high. The artificially high price of the toxic stocks is only temporary as the intrinsic value of the same is lower than the current bloated price.
The unrealistically high price of toxic stocks can be due to either an irrational exuberance associated with them or some fundamental drawbacks. Owning such stocks for a long period of time can be detrimental to investors and may result in huge erosion of wealth. Investors who can correctly distinguish between overblown/inflated toxic stocks and fairly priced stocks see success in the end.
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 fiscal year and the next during the past 12 weeks points to analysts’ pessimism.
Here are four of the 29 toxic stocks that showed up on the screen:
Cinemark: Based in Plano, Cinemark is one of the leaders in the motion picture exhibition industry. It operates 521 theaters with 5,855 screens in 42 states in the United States and internationally in 15 countries, mainly in South and Central America.
The Zacks Consensus Estimate for Cinemark’s 2022 bottom line is pegged at a loss of $1.42 a share. The consensus mark for 2022 loss has widened by $1.26 in the past 30 days. CNK currently carries a Zacks Rank #4 (Sell).
Las Vegas Sands: Based in Las Vegas, LVS is an international developer of multi-use integrated resorts, primarily operating in the United States and Asia.
The Zacks Consensus Estimate for Las Vegas’ 2022 bottom line is pegged at a loss of $1.10 a share. The consensus mark for 2022 loss has widened by 35 cents in the past 60 days. LVS currently carries a Zacks Rank #4.
Tandem Diabetes: TNDM is headquartered in California. The company designs, develops and markets products for people with insulin-dependent diabetes.
The Zacks Consensus Estimate for TNDM’s 2022 bottom line implies a year-over-year plunge of 188.5%. The consensus mark has deteriorated from earnings of 35 cents a share to a loss of 23 cents over the past 30 days. Tandem Diabetes currently carries a Zacks Rank #4.
HCI: Headquartered in Florida, HCI is a holding company that conducts its business activities through its subsidiaries. It is engaged in diverse business activities, including property and casualty insurance, information technology, real estate and reinsurance.
The Zacks Consensus Estimate for HCI’s 2022 bottom line implies a year-over-year plunge of 314.3%. The consensus mark has deteriorated from earnings of 50 cents a share to a loss of 45 cents over the past seven days. HCI currently carries 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.
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Distance Yourself From These 4 Toxic Stocks to Ward Off Losses
Amid fears of the Fed’s hawkish stance and economic uncertainty, major U.S. indices witnessed sharp corrections yesterday. The S&P 500 fell 2.13% yesterday to mark the worst trading day since mid-June. Severe bouts of volatility are expected in the near term amid geopolitical tensions and inflation concerns.
In times of such uncertainty, it’s as important to get rid of fundamentally weak toxic stocks as it is to invest in attractively valued companies possessing fundamental strength. An ill-informed investor can lose big if he stays invested in toxic stocks. So, to guard your portfolio against big losses, get rid of the toxic stocks before it’s too late.
Usually, toxic stocks are fraught with huge debt loads and are susceptible to external shocks. The price of toxic stocks is unreasonably high. The artificially high price of the toxic stocks is only temporary as the intrinsic value of the same is lower than the current bloated price.
The unrealistically high price of toxic stocks can be due to either an irrational exuberance associated with them or some fundamental drawbacks. Owning such stocks for a long period of time can be detrimental to investors and may result in huge erosion of wealth. Investors who can correctly distinguish between overblown/inflated toxic stocks and fairly priced stocks see success in the end.
Cinemark Holdings, Inc. (CNK - Free Report) , Las Vegas Sands (LVS - Free Report) , Tandem Diabetes Care, Inc. (TNDM - Free Report) and HCI Group, Inc. (HCI - Free Report) are a few such toxic stocks.
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 fiscal year and the next 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.
Stay Away From These Stocks
Here are four of the 29 toxic stocks that showed up on the screen:
Cinemark: Based in Plano, Cinemark is one of the leaders in the motion picture exhibition industry. It operates 521 theaters with 5,855 screens in 42 states in the United States and internationally in 15 countries, mainly in South and Central America.
The Zacks Consensus Estimate for Cinemark’s 2022 bottom line is pegged at a loss of $1.42 a share. The consensus mark for 2022 loss has widened by $1.26 in the past 30 days. CNK currently carries a Zacks Rank #4 (Sell).
Las Vegas Sands: Based in Las Vegas, LVS is an international developer of multi-use integrated resorts, primarily operating in the United States and Asia.
The Zacks Consensus Estimate for Las Vegas’ 2022 bottom line is pegged at a loss of $1.10 a share. The consensus mark for 2022 loss has widened by 35 cents in the past 60 days. LVS currently carries a Zacks Rank #4.
Tandem Diabetes: TNDM is headquartered in California. The company designs, develops and markets products for people with insulin-dependent diabetes.
The Zacks Consensus Estimate for TNDM’s 2022 bottom line implies a year-over-year plunge of 188.5%. The consensus mark has deteriorated from earnings of 35 cents a share to a loss of 23 cents over the past 30 days. Tandem Diabetes currently carries a Zacks Rank #4.
HCI: Headquartered in Florida, HCI is a holding company that conducts its business activities through its subsidiaries. It is engaged in diverse business activities, including property and casualty insurance, information technology, real estate and reinsurance.
The Zacks Consensus Estimate for HCI’s 2022 bottom line implies a year-over-year plunge of 314.3%. The consensus mark has deteriorated from earnings of 50 cents a share to a loss of 45 cents over the past seven days. HCI currently carries 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.