Since reaching a high of 12,810 at the end of April, the Dow Jones Industrial Average has been steadily declining. Even good stocks are getting caught up in the sell-off, but some stocks are on the decline because they deserve to be. Their prices may seem to make them bargain stocks, but sometimes you really do get what you pay for.
I don't want you to make the mistake of getting into positions that will end up hurting you. So I have a list of eight so-called bargain stocks from some of the hottest sectors on the market that you should stay away from. Don't be tricked into thinking that these declining prices present a great buying opportunity. If the fundamentals aren't there, then there really is a reason for these stocks to be falling.
Here are eight bargain stocks to avoid this summer:
Most oil and gas stocks have been profiting from the rise in oil prices, but there are two stocks in this sector that did not get invited to the party. Forest Oil Corp. (NYSE: FST ) and Frontline Ltd. (NYSE: FRO ) are both at the top of my list of bargain stocks to avoid. FST and FRO get failing grades in nearly every fundamental variable that I track.
Here's where they differ, though: While FST hasn't beat analyst expectations in three straight quarters, FRO has beaten estimates, but posted negative EPS during that time.
These stocks are both down double-digits over the past three months, and while the energy sector overall is heating up, don't be tricked into these two are bargain stocks.
Despite all the debate about the future of health care in this country, many health-care stocks have had excellent profit runs. I encourage you to pick up shares in this sector as long as you avoid MedAssets Inc. (NASDAQ: MDAS ) and Medtronic Inc. (NYSE: MDT ).
MedAssets shares have taken a tremendous plunge, and nothing short of a miracle will get them back into their old trading range. Following a very disappointing earnings report in late February, shares plummeted 30% in one day. Without a sharp turnaround in sales of its medical software products, MDAS is in for a rough summer and beyond. Steer clear.
Medtronic is a $41.5 billion medical equipment company that manufactures a number of cardiac-care products, including defibrillators. With age and health demographics working in MDT's favor, one would think that sales would be booming. But sales growth is slow, earnings growth is lackluster, and there just isn't any reason for investors to get excited.
Recent data shows that the housing market is facing a potential "double dip," and I don't recommend jumping head-first into this sector. But the construction I'm talking about today is more about heavy equipment, construction servicing, mining and energy equipment and processes. With the incredible run in commodities prices, companies have ramped-up production, which means more equipment is needed. There are some companies in this sector that I like very much, but there are two that you should not consider bargain stocks.
Oshkosh Corp. (NYSE: OSK ) manufactures heavy-equipment vehicles for the military, emergency response divisions, municipal and commercial fire and rescue, and a whole host of industries, including mining. Business has been a bust in the last few months and sales growth is expected to be negative through 2011. Without some major orders coming through in the next few months, this is going to be a dismal year for OSK. This is tough for me to say since I very much liked this company over a year ago. But times have changed and I'm not a buyer of OSK at any price right now.
Shaw Group Inc. (NYSE: SHAW ) handles construction, fabrication and maintenance for energy companies around the world. SHAW did see a dramatic rise in share price as energy prices picked up, but because the company lacks the fundamental strength needed in this market, shares quickly plunged. I give this company failing grades in every category, so don't get caught up in any quick moves in this stock. It will lure you in and then leave you penniless as the stock drops without warning.
I love tech stocks and one of the best ways to make money is to buy semiconductor stocks. These companies are the real geniuses behind advances in technology, and owning the right semiconductor stock at the right time can take you on a memorable profit ride. But not all semiconductor stocks are worth owning right now.
Applied Materials Inc. (NASDAQ: AMAT ) needs almost no introduction. This is a $17 billion semiconductor company that actually has experienced some sales and earnings growth in the last few quarters. That's the good news. The bad news is that buying interest for the company is drying up. Not even the 2.5% dividend is enough to bring in buyers at current prices. Analysts have revised earnings estimates for the upcoming quarter downward and that's a clear sign that we have a long way to go before AMAT can be considered a true bargain stock.
Silicon Laboratories Inc. (NASDAQ: SLAB ) is about one-ninth the size of AMAT, but it is still a $1.7 billion company with a global reach and name recognition to match. SLAB makes technology that allows analog devices to work in a digital world - televisions, cell phones, etc. This is, of course, only one of many things the company does very well, but shares have not seen a steady path of appreciation in the last year. With faltering sales, faltering earnings and waning buying pressure, this bargain stock certainly qualifies as one to avoid this summer and beyond.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.