Cast These 4 Toxic Stocks Aside Or Sell Short For Profit

Successful investing hinges on accurate identification of overblown toxic stocks and the rightly priced ones. However, precisely spotting toxic stocks and discarding them at the right time to make some gains at the end is not a simple task.

Overhyped toxic stocks are generally vulnerable to external shocks and burdened with a huge amount of debt. Also, the price of toxic stocks is unreasonably high. However, the high price of the toxic stocks is only temporary as it is higher than its intrinsic value.

Investors may benefit from the correct identification of toxic stocks with the help of an investing strategy known as short selling. This strategy allows them to sell a stock first and then buy it when the price falls.

While short selling excels in bear markets, it typically loses money in bull markets.

So, picking up toxic stocks and abandoning them at the right time is the key to guard your portfolio from big losses. Profits can be made by short selling them.

Screening Criteria

Here is a winning strategy that will help you to identify overpriced toxic stocks:

Most recent Debt/Equity Ratio greater than the median industry average: High debt/equity ratio implies high leverage. 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 50: 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 -5: Negative EPS estimate revision for this and the next fiscal year during the past 12 weeks points to analysts’ pessimism.

Zacks Rank more than or equal to #3 (Hold): We have not considered Buy-rated stocks that generally outperform the market.

Here are four of the 11 toxic stocks that showed up on the screen:

Bethpage, NY-based Altice USA, Inc. (NYSE:ATUS) is a leading broadband communications and video services provider in the United States. In the past 30 days, the Zacks Consensus Estimate for the current quarter has changed from earnings of a penny to a loss of a penny. The company has a Zacks Rank #4 (Sell).

Houston, TX-based Archrock, Inc. (NYSE:AROC) is a pure-play US natural gas contract compression services company. Over the past month, the Zacks Consensus Estimate for current quarter loss has widened from 2 cents per share to 3 cents. The company carries a Zacks Rank #4.

Live Nation Entertainment, Inc. (NYSE:LYV) is a Beverly Hills, CA-based live entertainment company. Over the past month, the Zacks Consensus Estimate for current quarter loss has widened from 49 cents per share to $1.05. The stock has a Zacks Rank #4.

Vancouver, Canada-based First Majestic Silver Corp. (NYSE:AG) is engaged in the production, development, exploration, and acquisition of silver mines in Mexico. In the past 30 days, the Zacks Consensus Estimate for the current quarter has changed from earnings of a penny to a loss of a penny. The stock has a Zacks Rank #4.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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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: https://www.zacks.com/performance.

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