Like so many people around the planet, I tuned into some Olympic
action over the weekend. Ever since childhood, I have enjoyed
watching events that do not usually grace the American sports
airwaves and learning about other nations and cultures. For some
reason, this time I've been paying attention to the "also-rans."
You know, that person out in lane eight that's usually not in the
camera, except at the start. What strikes me about it all is that
while everyone shakes hands, pats backs and exhibits good
sportsmanship, the Olympics, in a competitive sense, is one of the
cruelest events on Earth. You either have what it takes or you
don't. And winners aren't decided by tippy-toeing around the
issue-even in the case of the gymnastics floor exercise. The
reality is that you have to be the stone-cold best to win.
Besides the unusual and (as my English friend coined it) "very
British" opening ceremony, the big news of the first few days of
competition were the failings of a well-known swimmer and a major
disappointing performance by a gymnast. It just goes to show you
that those who were once considered the best eventually have bad
days that could mark the end of their careers. Thinking about the
let downs of a few well-known athletes and a Zacks.com customer's
question about stocks to sell gave me an idea. What are the
big-name companies that have already peaked or are primed for a
fall?
Be Careful with Big Name Stocks
Almost every stock that grows into a large market value began life
with a small market value (or at least that's the way it used to be
before the mega IPOs). As the corporation brought desired products
or services to the marketplace, it became more and more profitable.
As profits grew, investors began to notice and purchased the stock.
After many years of this cycle of success, the company eventually
matured into a big player in the corporate world and its market cap
increased as well.
However, as both the Olympics and the stock market illustrate, if
you're near the top, sometimes there's no other place to go but
down. If the company stagnates and fails to innovate, or becomes
susceptible to competition, a mature company will begin to decline.
Because some well-known stocks will peak, it's a good idea to
identify them before they begin to slip.
Avoid the Downside
Using the
Zacks Research Wizard
, I researched ways to recognize big-name companies before they
underperformed. Since the Research Wizard contains hundreds of
pieces of data for each company all at my finger-tips, it took me
just a short while to discover a strategy that identified
well-known companies that are "sell" or "short" candidates. Below
are the results from a 10-year backtest that compares a strategy of
those "biggies destined to collapse" alongside the S&P 500.
Here's one way to find "sell" candidates or stocks to short:
- First,
the stock has to be a member of the S&P 500.
(We want only the largest market cap companies.)
- Of the S&P 500 companies,
select only those 50 with the largest market
value.
(We want to focus on the biggest of the big.)
- Add another filter by selecting only those stocks with a
Zacks Rank greater than or equal to 3.
(Any Zacks Rank of 3 or greater is expected to either be at or
under market performance.)
- Next,
pick the 20 stocks with the lowest Sales/Assets
Ratio.
(Remember we are looking for poor performance and one of the best
indicators of this is a low Sales/Assets Ratio.)
- Finally,
choose the 10 stocks with the highest Price-to-Sales
Ratio.
(A high Price/Sales is usually a sign the stock is overpriced and
ready for a decline to bring the valuation back in line.)
Here are five of the ten stocks that passed the screen this week
(8/03/12).
Remember these are SELL candidates:
QCOM
- QUALCOMM Incorporated
QUALCOMM designs, develops, manufactures, and markets digital
telecommunications products and services. This large cap stock has
a Zacks Rank of 3, which isn't bad but not great either. Its
Sales/Assets is 0.4, which is another fairly mediocre number. But
what alarms me the most about this company is the P/S of 5.54. That
means for every $1 of actual sales, you need to pay $5.54 for the
pleasure of owning this company. Think this company is due for a
major correction? I do too.
OXY
- Occidental Petroleum Corporation
Occidental Petroleum engages in the exploration and production of
oil and gas properties in the United States and internationally.
This company has experienced numerous downward revisions in
earnings expectations for the next 3-4 quarters. That's never a
good sign, and is the reason behind its awful Zacks Rank of a 5. If
sales indeed soften up, the stock price of this company will surely
follow suit.
KO
- The Coca-Cola Company
The Coca-Cola Company engages in the manufacture, marketing and
sales of nonalcoholic, sparking and still beverages worldwide. This
well-known company has seen its stock price approximately double
over the last three years with little change to corporate
fundamentals or profitability. When you see a strong, increasing
price chart and a flat earnings trend, a little red flag should pop
up. Also, this company has a poor Zacks Rank because of decreasing
earnings prospects. It's P/S of 3.8 means that if a can of Coke
costs $1, an investor could purchase the ownership of that $1
revenue for $3.80. That doesn't sound very refreshing.
AMGN
- Amgen Inc.
Amgen discovers, develops, manufactures and markets human
therapeutics based on advances in cellular and molecular biology
for grievous illnesses, primarily in the United States, Europe and
Canada. This stock, as well as the entire biotech industry, is up
over 27% YTD. That kind of run usually brings into question a
stock's valuation. And the questions are surfacing regarding Amgen,
which has a P/S ratio almost two times the S&P 500's average.
Its Sales/Assets ratio isn't that great either by bringing in only
33 cents of revenue for every dollar in assets.
GOOG
- Google Inc.
Google maintains an index of web sites and other online content for
users, advertisers, and Google network members and other content
providers. The current stock price of this mega-company is about
the same as it was in December 2007 even though a lot of zigzagging
has occurred over that time. What's noteworthy is that Google still
looks expensive by almost all valuation measures. Its P/S ratio is
more than double the S&P 500 and over 1.5 times its industry
average. The company has also seen earnings projections revised
downward.
Your Ticket to Gold (or at least profitable
investing)
Remember back in 1984 when a certain fast-food restaurant chain had
a scratch card game that gave away free food depending if an
American athlete won a medal for a specific event? Remember also
that the Soviet-bloc countries boycotted those same Olympics as
payback for the boycott of 1980? That combination resulted in a
windfall of almost as much free food as you could eat. Using the
Research Wizard to find outperforming strategies is almost as easy
as getting a free lunch. Although you can't use it to win a gold
medal at the Olympics; you can use the Research Wizard to profit in
the stock market. That's the closest competitive arena for most of
us anyway.
Want to know the other five stocks the screen identified as large
cap stocks to avoid? Or how about discovering stocks that are ideal
short candidates with a strategy that's already available in the
Zacks Research Wizard
?
Starting today, you are invited to use it free of charge. You'll
have 14 days to create, tweak and backtest your strategies. At the
same time, you can see the latest picks from pre-loaded winning
strategies with average gains of up to +67.4% per year.
Learn more about your
Research Wizard
free trial >>
Let's make some money!
Kip
Kip Robbins is a Quantitative Analyst with Zacks.com. He
analyzes screens and strategies for Zacks customers and for use in
Zacks Research Wizard
, which empowers individual investors to use market-beating
screens, build their own, and backtest their results.
AMGEN INC (AMGN): Free Stock Analysis Report
AMGEN INC (AMGN): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis
Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis
Report
COCA COLA CO (KO): Free Stock Analysis Report
COCA COLA CO (KO): Free Stock Analysis Report
OCCIDENTAL PET (OXY): Free Stock Analysis
Report
OCCIDENTAL PET (OXY): Free Stock Analysis
Report
QUALCOMM INC (QCOM): Free Stock Analysis Report
QUALCOMM INC (QCOM): Free Stock Analysis Report
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