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4 Toxic Stocks That Are Detrimental to Your Portfolio's Health
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Investors need to be mindful of the performance of each stock present in their portfolios to maximize profit while keeping the associated risk at bay. Predominantly, toxic stocks are biggest contributors of risks in any portfolio. Now, the question is, what are toxic stocks and how to identify them?
Companies usually take debts to expand their business and eventually reward their shareholder through dividends. But there are some companies that have high debts on their balance sheet and are unable to translate those high debts into profits. The struggle to generate revenues is apparent in the financial statements and is a telltale sign of toxic stocks.
Toxic companies are usually characterized by huge debt loads and are vulnerable to external shocks. These stocks might illusively scale lofty heights in a given time period but the good show doesn’t last for these overblown toxic stocks. This is because their current price is not justified by their fundamental strength. Accurately identifying such bloated stocks and getting rid of them at the right time can protect your portfolio.
At some instances, investors may fail to identify toxic stocks despite meticulously studying financial statements because of misleading information. In such cases, diversification can prove out to be a savior. Accumulating stocks from different sectors with low correlation is a key to diversification. A well-diversified portfolio is least likely to suffer from the adverse outcome of a toxic stock present in the portfolio.
If investors can successfully identify a toxic stock in their portfolio, they can short-sell it and buy it again at a lower price to generate profits.
AngioDynamics Inc. (ANGO - Free Report) , Definitive Healthcare Corp. (DH - Free Report) , Casella Waste Systems, Inc. (CWST - Free Report) and Enviva Inc. (EVA - Free Report) are a few toxic stocks that you should dump from your portfolio.
Screening Criteria
Here is a winning strategy that will help you to identify 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 a 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:
AngioDynamics designs, manufactures and sells a wide range of medical, surgical and diagnostic devices. The company’s devices are generally used in minimally invasive, image-guided procedures. The Zacks Consensus Estimate for ANGO’s 2023 bottom line is pegged at a loss of 4 cents per share. The consensus mark has moved south from earnings of 1 cent per share to a loss of 4 cents per share over the past 30 days. AngioDynamics missed earnings estimates in two out of the last four quarters, matched once and beat on the other, with the average negative surprise being 50%. The company 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 bottom line is pegged at a profit of 22 cents per share, implying a year-over-year deterioration of 4.35%. The consensus mark has moved south from earnings of 23 cents per share over the past 60 days. Definitive Healthcare beat earnings estimates in all four trailing quarters, with the average surprise being 35%. The company carries a Zacks Rank #4 (Sell) and has a VGM Score of F.
Casella Waste is a regional, integrated solid waste services company that provides collection, transfer, disposal and recycling services, generates steam and manufactures finished products utilizing recyclable materials primarily throughout the eastern portion of the United States and parts of Canada. The Zacks Consensus Estimate for the firm’s 2023 earnings has moved south from $1.31 per share to earnings of $1.21 per share over the past 60 days. The company carries a Zacks Rank #4 and has a VGM Score of C.
Enviva is a producer of industrial wood pellets, a renewable and sustainable energy source produced by aggregating a natural resource, wood fiber, and processing it into a transportable form. The Zacks Consensus Estimate for EVA’s 2023 bottom line has moved south from earnings of 59 cents per share to a loss of 6 cents per share over the past 30 days. Enviva missed earnings estimates in all the last four quarters, with the average negative surprise being 294.32%. The company carries a Zacks Rank #4 and has 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 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.
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4 Toxic Stocks That Are Detrimental to Your Portfolio's Health
Investors need to be mindful of the performance of each stock present in their portfolios to maximize profit while keeping the associated risk at bay. Predominantly, toxic stocks are biggest contributors of risks in any portfolio. Now, the question is, what are toxic stocks and how to identify them?
Companies usually take debts to expand their business and eventually reward their shareholder through dividends. But there are some companies that have high debts on their balance sheet and are unable to translate those high debts into profits. The struggle to generate revenues is apparent in the financial statements and is a telltale sign of toxic stocks.
Toxic companies are usually characterized by huge debt loads and are vulnerable to external shocks. These stocks might illusively scale lofty heights in a given time period but the good show doesn’t last for these overblown toxic stocks. This is because their current price is not justified by their fundamental strength. Accurately identifying such bloated stocks and getting rid of them at the right time can protect your portfolio.
At some instances, investors may fail to identify toxic stocks despite meticulously studying financial statements because of misleading information. In such cases, diversification can prove out to be a savior. Accumulating stocks from different sectors with low correlation is a key to diversification. A well-diversified portfolio is least likely to suffer from the adverse outcome of a toxic stock present in the portfolio.
If investors can successfully identify a toxic stock in their portfolio, they can short-sell it and buy it again at a lower price to generate profits.
AngioDynamics Inc. (ANGO - Free Report) , Definitive Healthcare Corp. (DH - Free Report) , Casella Waste Systems, Inc. (CWST - Free Report) and Enviva Inc. (EVA - Free Report) are a few toxic stocks that you should dump from your portfolio.
Screening Criteria
Here is a winning strategy that will help you to identify 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 a 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 29 toxic stocks that showed up on the screen:
AngioDynamics designs, manufactures and sells a wide range of medical, surgical and diagnostic devices. The company’s devices are generally used in minimally invasive, image-guided procedures. The Zacks Consensus Estimate for ANGO’s 2023 bottom line is pegged at a loss of 4 cents per share. The consensus mark has moved south from earnings of 1 cent per share to a loss of 4 cents per share over the past 30 days. AngioDynamics missed earnings estimates in two out of the last four quarters, matched once and beat on the other, with the average negative surprise being 50%. The company 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 bottom line is pegged at a profit of 22 cents per share, implying a year-over-year deterioration of 4.35%. The consensus mark has moved south from earnings of 23 cents per share over the past 60 days. Definitive Healthcare beat earnings estimates in all four trailing quarters, with the average surprise being 35%. The company carries a Zacks Rank #4 (Sell) and has a VGM Score of F.
Casella Waste is a regional, integrated solid waste services company that provides collection, transfer, disposal and recycling services, generates steam and manufactures finished products utilizing recyclable materials primarily throughout the eastern portion of the United States and parts of Canada. The Zacks Consensus Estimate for the firm’s 2023 earnings has moved south from $1.31 per share to earnings of $1.21 per share over the past 60 days. The company carries a Zacks Rank #4 and has a VGM Score of C.
Enviva is a producer of industrial wood pellets, a renewable and sustainable energy source produced by aggregating a natural resource, wood fiber, and processing it into a transportable form. The Zacks Consensus Estimate for EVA’s 2023 bottom line has moved south from earnings of 59 cents per share to a loss of 6 cents per share over the past 30 days. Enviva missed earnings estimates in all the last four quarters, with the average negative surprise being 294.32%. The company carries a Zacks Rank #4 and has 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 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.