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4 Toxic Stocks That You Should Eliminate From Your Portfolio
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The ability to differentiate overhyped stocks from fairly priced ones makes investing foolproof. But in the complex market place, correctly priced stocks and over-bubble stocks are mingled in such a way that making a distinction between them becomes very difficult. Nevertheless, precisely pinpointing bloated toxic stocks on a regular basis and abandoning them at the right time is one of the secrets to a winning investment strategy.
Toxic companies are usually vulnerable to external shocks and are characterized by high debt loads. The hype surrounding irrationally high-priced toxic stocks is usually short-lived as their current price exceeds the intrinsic value. These toxic stocks are bound to result in a loss for investors over time.
Higher prices of toxic stocks can be ascribed to either an irrational exuberance associated with them or some serious fundamental drawbacks. If you own such bloated stocks for a long period of time, you are bound to see huge erosion of wealth.
However, if you can correctly pick such 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 identifying stocks with growth potential, pinpointing toxic stocks and discarding them at the right time is the key to guard your portfolio from big losses. CoStar Group (CSGP - Free Report) , Definitive Healthcare Corp. (DH - Free Report) , Montauk Renewables Inc. (MNTK - Free Report) and Westrock Coffee Company (WEST - 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.
Here are four of the 25 toxic stocks that showed up on the screen:
CoStar Group is a provider of information, analytics and online marketplaces to the commercial real estate industry in the United States and the U.K. The Zacks Consensus Estimate for CSGP’s 2023 EPS has moved south by 7 cents over the past 30 days. The consensus mark for 2024 EPS has been revised down by 5 cents over the past 30 days. CoStar Group currently carries a Zacks Rank #5 (Strong Sell) and has a VGM Score of F.
Definitive Healthcare provides healthcare commercial intelligence. The company's SaaS platform creates new paths in the healthcare market. The Zacks Consensus Estimate for DH’s 2023 EPS has moved south by 1 cent over the past 30 days. The consensus mark for 2024 EPS has been revised down by 4 cents over the past 30 days. Definitive Healthcare currently carries a Zacks Rank #4 (Sell) and has a VGM Score of F.
Montauk is a fully-integrated renewable energy company. It specializes in the management, recovery and conversion of biogas into renewable energy. The Zacks Consensus Estimate for MNTK’s 2023 EPS has moved south by 45 cents over the past 30 days. The consensus mark for 2024 EPS has been revised down by 55 cents over the past 30 days. Montauk currently carries a Zacks Rank #4 and has a VGM Score of C.
Westrock is an integrated coffee, tea, flavors, extracts and ingredients solutions provider principally in the United States. The Zacks Consensus Estimate for WEST’s 2023 EPS has moved south by 7 cents over the past 30 days. The consensus mark for 2024 EPS has been revised down by 26 cents over the past 30 days. Westrock currently carries a Zacks Rank #4 and has a VGM Score of D.
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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4 Toxic Stocks That You Should Eliminate From Your Portfolio
The ability to differentiate overhyped stocks from fairly priced ones makes investing foolproof. But in the complex market place, correctly priced stocks and over-bubble stocks are mingled in such a way that making a distinction between them becomes very difficult. Nevertheless, precisely pinpointing bloated toxic stocks on a regular basis and abandoning them at the right time is one of the secrets to a winning investment strategy.
Toxic companies are usually vulnerable to external shocks and are characterized by high debt loads. The hype surrounding irrationally high-priced toxic stocks is usually short-lived as their current price exceeds the intrinsic value. These toxic stocks are bound to result in a loss for investors over time.
Higher prices of toxic stocks can be ascribed to either an irrational exuberance associated with them or some serious fundamental drawbacks. If you own such bloated stocks for a long period of time, you are bound to see huge erosion of wealth.
However, if you can correctly pick such 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 identifying stocks with growth potential, pinpointing toxic stocks and discarding them at the right time is the key to guard your portfolio from big losses. CoStar Group (CSGP - Free Report) , Definitive Healthcare Corp. (DH - Free Report) , Montauk Renewables Inc. (MNTK - Free Report) and Westrock Coffee Company (WEST - 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 #3 (Hold): We have not considered Buy/Hold-rated stocks that generally outperform or are in line with the market. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Here are four of the 25 toxic stocks that showed up on the screen:
CoStar Group is a provider of information, analytics and online marketplaces to the commercial real estate industry in the United States and the U.K. The Zacks Consensus Estimate for CSGP’s 2023 EPS has moved south by 7 cents over the past 30 days. The consensus mark for 2024 EPS has been revised down by 5 cents over the past 30 days. CoStar Group currently carries a Zacks Rank #5 (Strong Sell) and has a VGM Score of F.
Definitive Healthcare provides healthcare commercial intelligence. The company's SaaS platform creates new paths in the healthcare market. The Zacks Consensus Estimate for DH’s 2023 EPS has moved south by 1 cent over the past 30 days. The consensus mark for 2024 EPS has been revised down by 4 cents over the past 30 days. Definitive Healthcare currently carries a Zacks Rank #4 (Sell) and has a VGM Score of F.
Montauk is a fully-integrated renewable energy company. It specializes in the management, recovery and conversion of biogas into renewable energy. The Zacks Consensus Estimate for MNTK’s 2023 EPS has moved south by 45 cents over the past 30 days. The consensus mark for 2024 EPS has been revised down by 55 cents over the past 30 days. Montauk currently carries a Zacks Rank #4 and has a VGM Score of C.
Westrock is an integrated coffee, tea, flavors, extracts and ingredients solutions provider principally in the United States. The Zacks Consensus Estimate for WEST’s 2023 EPS has moved south by 7 cents over the past 30 days. The consensus mark for 2024 EPS has been revised down by 26 cents over the past 30 days. Westrock currently carries a Zacks Rank #4 and has a VGM Score of D.
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.