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Dump These 5 Toxic Stocks or Sell Short for Timely Profits

Zacks

Success in investing hinges upon correct identification of overblown toxic stocks and the rightly priced ones. However, spotting the toxic stocks on time and getting rid of them to make some profits is not an easy task.

Overpriced toxic stocks are generally susceptible to external shocks. Moreover, these stocks are loaded with huge debts. The price of these toxic stocks is artificially inflated. However, the higher price of toxic stocks is only temporary as it is higher than its true intrinsic value.

Investors may profit from proper identification of toxic stocks with the help of an investing strategy known as 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, figuring out toxic stocks and discarding or short selling them at the right time is the key to protect 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 20 toxic stocks that showed up on the screen:

Live Nation Entertainment, Inc. LYV is a Beverly Hills, CA-based live entertainment company. Over the past month, the Zacks Consensus Estimate for current-quarter loss has widened from 22 cents per share to 25 cents. The stock has a Zacks Rank #4 (Sell).

Norwell, MA-based Clean Harbors, Inc. CLH is a leading provider of environmental, energy and industrial services in North America. Over the past month, the Zacks Consensus Estimate for current-quarter loss has narrowed from 16 cents per share to 14 cents. The stock currently has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Covanta Holding Corporation CVA 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 14 cents per share to 20 cents. The company has a Zacks Rank #4.

PTC Inc. PTC 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 has remained unchanged at 31 cents per share. The stock has a Zacks Rank #4.

Houston, TX-based Archrock, Inc. AROC is a pure-play U.S. natural gas contract compression services company. Over the past month, the Zacks Consensus Estimate for current-quarter earnings has remained at a break-even point. The company carries 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.

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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.

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