5 Toxic Stocks That You Should Not be Owning
Not all stocks that hit high highs recently will be able to keep up their good show. In fact, some of these stocks - whose current value has exceeded their real potential - will result in losses for investors over time.
Regardless of what the broader market is doing, stocks without solid fundamentals are toxic to your portfolio. Accurately identifying such bloated inventory and disposing of it at the right time can protect your returns.
Overestimation of these toxic stocks can be attributed either to an associated irrational exuberance or to some serious basic drawback. And if you've owned such stocks for an extended period of time, you're likely to see significant erosion of your wealth.
However, if you can properly figure out such toxic stocks, you can make a profit in a bear market by resorting to an investment strategy called short selling. This strategy makes it possible to sell a stock first and then buy it when the price falls.
While short selling is great in the bear markets, it usually loses money in the bull markets.
Just as with picking promising stocks, identifying toxic stocks and discarding them at the right time is critical to protecting your portfolio from big losses or making profits by short selling.
Here is a successful strategy you can use to identify overpriced toxic stocks:
The recent debt to equity ratio is above the industry average: a high debt to equity ratio implies increased leverage. A high level of debt indicates a huge repayment that the company will have to make in connection with the amount of debt.
P / E ratio with a 12-month forward EPS estimate of more than 50: A very high forward P / E ratio implies that a stock is grossly overvalued.
% Change in the estimate of F (1) and F (2) (12 weeks) below -5: The negative revision of the EPS estimate for this and the next financial year in the last 12 weeks indicates the pessimism of the analysts.
Zack's rank greater than or equal to # 3 (Hold): We did not include buy-rated stocks that generally outperform the market. The full list of today's Zacks # 1 Rank (Strong Buy) stocks can be found here.
Here are five of the 16 toxins that appeared on the screen:
Vail Resorts, Inc. MTN: This Colorado-based ski resort operator currently has a Zacks Rank 5 (Strong Sell). The Zacks consensus estimate for the 2021 financial year result indicates a decrease of 75.8% compared to the previous year. In the past 30 days, earnings estimates for fiscal 2021 have fallen 84%.
Rite Aid Corporation RAD: Rite Aid is headquartered in Pennsylvania and is one of the leading drugstore chains in the United States. The company currently has a Zack rank 4 (sales). The Zacks consensus estimate for FY 2021 final results is currently associated with a loss of 7 cents per share.
Aramark Holding ARMK: Philadelphia-based Aramark, currently ranked 4th in Zacks, provides healthcare facilities, universities, school districts, stadiums and corporate catering services, facility management, uniform and career wear. The Zacks consensus estimate for fiscal 2020 is currently a loss of 11 cents per share. In the last 30 days, the loss estimates for the 2020 financial year have increased by 5 cents per share.
Allegiant Travel ALGT: This Zacks Rank # 4 leisure travel company provides air transportation, hotel booking, rental cars, travel management and other related services. The Zacks consensus estimate for fiscal 2020 is currently at a loss of $ 10.77 per share. In the past 30 days, the 2020 fiscal year loss per share estimate has increased 10.9%.
Bitauto Holdings Limited BITA: Rank 5, this Zacks company provides internet content and marketing services to the automotive industry in China. The Zacks consensus estimate for the 2020 financial year currently assumes a loss of 49 cents per share. Over the past 60 days, loss estimates for fiscal 2020 have increased 69.5%.
Get the rest of the stocks on the list and put these and other ideas to the test. All of this can be done using the Research Wizard's stock wicking and backtesting software.
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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 referred to in this material. An affiliate investment adviser may own or have sold short securities and / or hold long and / or short positions in options referred to in this material.
Disclosure: Performance information for Zacks' portfolios and strategies can be found at: https://www.zacks.com/performance
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Rite Aid Corporation (RAD): Free Stock Research Report
Allegiant Travel Company (ALGT): Free Stock Research Report
Bitauto Holdings Limited (BITA): Free Stock Analysis Report
Vail Resorts, Inc. (MTN): Free Stock Research Report
Aramark (ARMK): Free Stock Analysis Report
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