Investing in a stock whose current price is not rationally
justified by its true potential is sure to result in loss over
time. Identifying such bloated stocks accurately and dumping them
at the right time can protect your portfolio.
Overpricing of these toxic stocks can be attributed to either an
irrational exuberance associated with them or some serious
drawbacks. And if you own such stocks for an inordinate
period of time, you are likely to see significant erosion of your
However, if you can correctly detect such 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 buy it when the price falls.
Naturally, short selling excels in bear markets, while it typically
loses money in bull markets.
So, just like identifying promising stocks, detecting toxic stocks
and dumping them at the right time is crucial to safeguarding one's
portfolio from big losses or earning 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
: NegativeEPS 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 5 of the 16 stocks that made it through the screen:
The Woodlands, TX-based
is a specialty retailer which currently operates retail locations
in Texas and Louisiana. Over the last 30 days, its current quarter
estimate has remained unchanged at a loss of 2 cents per share.
Conns carries a Zacks Rank #5 (Strong Sell).
ZELTIQ Aesthetics, Inc.
is a medical technology company. Over the past 30 days, its current
quarter estimate has remained unchanged at a loss of 7 cents per
share. The company has a Zacks Rank #4 (Sell).
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
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, 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 #4.
Covanta Holding Corporation
is a Morristown, NJ-based alternative energy company which provides
waste and energy services in the U.S. and Canada. Over the past 30
days, its current quarter estimate has remained unchanged at a loss
of 15 cents per share. The company has a Zacks Rank #3
Get the rest of the stocks on the list and start putting this and
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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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DREAMWORKS ANIM (DWA): Free Stock Analysis
ZELTIQ AESTHETC (ZLTQ): Free Stock Analysis
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