Owning a toxic stock whose current price is not supported by its
actual fundamental strength is sure to result into loss over time.
Toxic companies are usually characterized by huge debt burdens and
are vulnerable to external shocks. Spotting these overvalued stocks
and unloading them at the right time is the key to a successful
Overpricing of toxic stocks may be ascribed to the irrational
exuberance associated with them or due to some serious fundamental
lacunae. And if you own such stocks for an inordinate period of
time, they could cause massive damage to your wealth.
However, if you can pinpoint toxic stocks, you may gain in a bear
market by resorting to an investing strategy called short selling.
This strategy allows one to sell a stock first and then purchase it
when its price falls.
Naturally, short selling excels in bear markets, while it typically
loses money in bull markets.
So, just like identifying promising stocks, picking up toxic stocks
and unloading them at the right time is crucial to shield one's
portfolio from huge losses or making profits by short selling them.
Here is a winning strategy that will help you identify the
over-hyped toxic stocks:
Most recent Debt/Equity Ratio greater than the median
: High debt/equity ratio implies high leverage. And 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
: A very high forward P/E implies that a stock is highly
% Change in F (1) and F (2) Estimate (12 Weeks) less than
: Negative EPS estimate revision for this and the next fiscal year
during the past 12 weeks point to analysts' pessimism.
Zacks Rank more than or equal to #3
: We have not considered Buy-rated stocks that generally outperform
Here are five of the 18 stocks that made it through the screen:
Capital Senior Living Corp.
based in Dallas, TX is engaged in providing senior living services
in the U.S. Over the last 30 days, its quarterly estimate has moved
down from 2 cents a share to a no loss, no gain situation. Capital
Senior Living carries a Zacks Rank #3 (Hold).
DreamWorks Animation SKG Inc.
is engaged in developing and producing computer generated animated
feature films for a broad movie-going audience. Over the past
one-month period, its current quarter earnings estimate has widened
from a loss of 2 cents per share to a loss of 5 cents. The stock
currently has a Zacks Rank #3.
ZELTIQ Aesthetics, Inc.
is a medical technology company. Over the past 30 days, its current
quarter estimate has moved down 22.2% to 7 cents per share.
The company has a Zacks Rank #3.
HERC Holdings, Inc.
is a Bonita Springs, FL-based full-line equipment-rental supplier
in North America. Over the past 30 days, its current quarter
estimate has remained unchanged at 49 cents per share. The
company has a Zacks Rank #3.
is a Needham, MA-based software company engaged in developing,
marketing and supporting software solutions. Over the past
one-month period, the current quarter earnings estimate has
declined around 19.4% to 29 cents. The stock currently has a Zacks
Rank #4 (Sell).
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.
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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
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PTC INC (PTC): Free Stock Analysis Report
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