Investing in a stock whose current bloated price is not
justified by its true inherent potential, is bound to result in
loss over time. Pinpointing these overblown toxic stocks on a
regular basis and abandoning them at the right time is one of the
secrets to a winning investment strategy.
Overpricing of toxic stocks may be due to the irrational exuberance
associated with them or due to some serious fundamental lacunae.
And if you own such stocks for an unreasonable period, they could
inflict severe damage to your wealth.
However, if you can identify 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 detecting promising stocks, picking up toxic stocks
and getting rid of them at the right time is crucial to protecting
one's portfolio from massive losses or making profits by short
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 overvalued.
% 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 10 stocks that made it through the screen:
Covanta Holding Corporation
, the Morristown, NJ-based other alternative energy industry
company is the owner and operator of large-scale Energy-from-Waste
and renewable energy projects. Over the last 60 days, its
second-quarter 2016 estimate has remained unchanged at a loss of 4
cents per share. Covanta Holding carries a Zacks Rank #3 (Hold).
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).
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, the second-quarter earnings estimate has widened
from a loss of 2 cents per share to a loss of 4 cents. The stock
currently has a Zacks Rank #4.
is a Carlsbad, CA-based wireless equipment company. Over the past
two months, the second-quarter earnings estimate has remained
unchanged at 15 cents per share. The stock currently carries a
Zacks Rank #4.
Live Nation Entertainment, Inc.
is a Beverly Hills, CA-based live entertainment company. Over the
past seven days, the estimate for the quarter ending June 30 has
remained unchanged at 5 cents per share. The stock currently 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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VIASAT INC (VSAT): Free Stock Analysis Report
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DREAMWORKS ANIM (DWA): Free Stock Analysis
ZELTIQ AESTHETC (ZLTQ): Free Stock Analysis
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