We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Don't Let These Toxic Stocks Disrupt Your Portfolio
Read MoreHide Full Article
Distinguishing between overpriced and fairly priced stocks is the key to successful investing. But the task is not easy, as the correctly priced and overvalued stocks are mingled in a very deceptive way in the marketplace. Investors who can pinpoint the overhyped toxic stocks and discard them at the right time are the ones poised to benefit.
Usually, toxic companies are vulnerable to external shocks. These companies are burdened with huge debts too. Also, the unjustifiably high price of the toxic stocks is short-lived as their current price exceeds their inherent value. Quite naturally, these stocks are bound to result in a loss for investors over time. Ligand Pharmaceuticals , Las Vegas Sands (LVS - Free Report) , CoStar Group (CSGP - Free Report) and Blackbaud Inc. (BLKB - Free Report) are a few such toxic stocks that you should dump to avoid portfolio bleeding.
Higher price of the toxic stocks can be attributed to either an irrational exuberance associated with them or some serious fundamental lacuna. If you own such stocks for long, you are likely to see a big loss in your wealth.
If you can, however, precisely spot the toxic stocks, you may gain by resorting to an investing strategy called short selling. This strategy allows you 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, just like figuring out stocks with growth potential, identifying toxic stocks and discarding them at the right time is the key to shield your portfolio from big losses or make profits 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 fiscal year and the next during the past 12 weeks points to analysts’ pessimism.
Here are four of the 43 toxic stocks that showed up on the screen:
Ligand: San Diego-based Ligand is a biotechnology company focused on the development and licensing of biopharmaceutical assets. Ligand’s dependence on the Captisol program and Captisol-based partnerships is concerning. If any of the company’s partners fail to receive regulatory approval or terminate a deal, Ligand’s prospects would be severely hampered.
Ligand currently carries a Zacks Rank #5 (Strong Sell) and has a VGM Score of C. The Zacks Consensus Estimate for LGND’s 2022 earnings has moved south by 28 cents over the past 30 days to $2.99 a share, implying a 53.4% decline year over year.
CoStar: Based in the United States, CoStar provides information, analytics, and online marketplace services to the commercial real estate, hospitality, residential, and related professional industries. The company expects 2022 adjusted EBITDA in the band of $565-$605 million, implying a year-over-year decline of 10% at the midpoint.
CoStar currently carries a Zacks Rank #5 and has a VGM Score of D. The Zacks Consensus Estimate for CSGP’s 2022 earnings has moved south by 8 cents over the past 30 days to $1.01 a share, implying an 11.4% decline year over year.
Blackbaud: Headquartered in Charleston, Blackbaud is a cloud software company working for social causes. The firm combines technology and expertise to help organizations achieve their missions. Stiff competition in the non-profit sector, macroeconomic weakness, a highly leveraged balance sheet and integration risks remain potential headwinds for BLKB.
Blackbaud currently carries a Zacks Rank #4 (Sell) and has a VGM Score of D. The Zacks Consensus Estimate for BLKB’s 2022 earnings has moved south by 2 cents over the past 30 days to $2.72 a share, implying a 10.5% decline year over year.
Las Vegas Sands: Based in Las Vegas, LVS is an international developer of multi-use integrated resorts, primarily operating in the United States and Asia. The company’s stretched balance sheet remains a major concern, especially amid the coronavirus crisis. As of Dec 31, 2021, Las Vegas Sands’ total debt and unrestricted cash balance amounted to $14.8 billion and $1.8 billion, respectively.
LVS currently carries a Zacks Rank #4 and has a VGM Score of C. The Zacks Consensus Estimate for Las Vegas Sands’ 2022 EPS has been revised 79% downward over the past 90 days. The stock missed earnings estimates in two of the trailing four quarters for as many misses, with the average negative surprise being 26.3%.
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.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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.
Image: Bigstock
Don't Let These Toxic Stocks Disrupt Your Portfolio
Distinguishing between overpriced and fairly priced stocks is the key to successful investing. But the task is not easy, as the correctly priced and overvalued stocks are mingled in a very deceptive way in the marketplace. Investors who can pinpoint the overhyped toxic stocks and discard them at the right time are the ones poised to benefit.
Usually, toxic companies are vulnerable to external shocks. These companies are burdened with huge debts too. Also, the unjustifiably high price of the toxic stocks is short-lived as their current price exceeds their inherent value. Quite naturally, these stocks are bound to result in a loss for investors over time. Ligand Pharmaceuticals , Las Vegas Sands (LVS - Free Report) , CoStar Group (CSGP - Free Report) and Blackbaud Inc. (BLKB - Free Report) are a few such toxic stocks that you should dump to avoid portfolio bleeding.
Higher price of the toxic stocks can be attributed to either an irrational exuberance associated with them or some serious fundamental lacuna. If you own such stocks for long, you are likely to see a big loss in your wealth.
If you can, however, precisely spot the toxic stocks, you may gain by resorting to an investing strategy called short selling. This strategy allows you 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, just like figuring out stocks with growth potential, identifying toxic stocks and discarding them at the right time is the key to shield your portfolio from big losses or make profits 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 fiscal year and the next 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. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Here are four of the 43 toxic stocks that showed up on the screen:
Ligand: San Diego-based Ligand is a biotechnology company focused on the development and licensing of biopharmaceutical assets. Ligand’s dependence on the Captisol program and Captisol-based partnerships is concerning. If any of the company’s partners fail to receive regulatory approval or terminate a deal, Ligand’s prospects would be severely hampered.
Ligand currently carries a Zacks Rank #5 (Strong Sell) and has a VGM Score of C. The Zacks Consensus Estimate for LGND’s 2022 earnings has moved south by 28 cents over the past 30 days to $2.99 a share, implying a 53.4% decline year over year.
CoStar: Based in the United States, CoStar provides information, analytics, and online marketplace services to the commercial real estate, hospitality, residential, and related professional industries. The company expects 2022 adjusted EBITDA in the band of $565-$605 million, implying a year-over-year decline of 10% at the midpoint.
CoStar currently carries a Zacks Rank #5 and has a VGM Score of D. The Zacks Consensus Estimate for CSGP’s 2022 earnings has moved south by 8 cents over the past 30 days to $1.01 a share, implying an 11.4% decline year over year.
Blackbaud: Headquartered in Charleston, Blackbaud is a cloud software company working for social causes. The firm combines technology and expertise to help organizations achieve their missions. Stiff competition in the non-profit sector, macroeconomic weakness, a highly leveraged balance sheet and integration risks remain potential headwinds for BLKB.
Blackbaud currently carries a Zacks Rank #4 (Sell) and has a VGM Score of D. The Zacks Consensus Estimate for BLKB’s 2022 earnings has moved south by 2 cents over the past 30 days to $2.72 a share, implying a 10.5% decline year over year.
Las Vegas Sands: Based in Las Vegas, LVS is an international developer of multi-use integrated resorts, primarily operating in the United States and Asia. The company’s stretched balance sheet remains a major concern, especially amid the coronavirus crisis. As of Dec 31, 2021, Las Vegas Sands’ total debt and unrestricted cash balance amounted to $14.8 billion and $1.8 billion, respectively.
LVS currently carries a Zacks Rank #4 and has a VGM Score of C. The Zacks Consensus Estimate for Las Vegas Sands’ 2022 EPS has been revised 79% downward over the past 90 days. The stock missed earnings estimates in two of the trailing four quarters for as many misses, with the average negative surprise being 26.3%.
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.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
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.