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Beware of These 4 Toxic Stocks Amid Market Uncertainty
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Wall Street has been witnessing severe bouts of volatility, which is expected to continue in the near term amid geopolitical tensions, the global food crisis, a spike in coronavirus cases — especially in China — and high inflation. In times of such uncertainty, it’s as important to get rid of fundamentally weak toxic stocks as it is to invest in attractively valued companies possessing fundamental strength.
Toxic companies are usually characterized by huge debt loads and are vulnerable to external shocks. These stocks might illusively scale lofty heights in a given time period but the good show doesn’t last for these overblown toxic stocks, as their current price is not justified by their fundamental strength. Accurately identifying such bloated stocks and getting rid of them at the right time can protect your portfolio.
Overpricing of these toxic stocks can be attributed to either an irrational enthusiasm surrounding them or some serious fundamental drawbacks. If you own such bubble stocks for an inordinate period of time, you are bound to see massive erosion of wealth.
Nonetheless, if you can precisely spot such toxic stocks, you may gain 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. While short selling excels in bear markets, it typically loses money in bull markets.
So, just like identifying stocks with growth potential, pinpointing toxic stocks and offloading them at the right time is crucial to guard one’s portfolio from big losses or make profits by short selling them. Atlantica Yield Plc (AY - Free Report) , Astronics Corporation (ATRO - Free Report) , GoodRx Holdings Inc. (GDRX - Free Report) and Las Vegas Sands (LVS - Free Report) are a few such toxic stocks.
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 4 of the 35 toxic stocks that showed up on the screen:
Atlantica Yield: Based in Brentford, Atlantica Yield owns, manages and acquires a diversified portfolio of contracted assets in the power and environment sectors. In the last reported quarter, AY incurred a loss of 10 cents per share against the consensus mark of a profit of 11 cents. In fact, the company has fallen short of earnings estimates in each of the last four quarters, with the average negative surprise being 102.3%.
The Zacks Consensus Estimate for Atlantica Yield’s 2022 earnings has been downwardly revised by 16 cents over the past 30 days. The consensus mark for 2023 earnings has also moved south by 19 cents to 72 cents, implying a year-over-year decline of 1.8%. AY currently carries a Zacks Rank #5 (Strong Sell).
GoodRx: This California-based company is a consumer-focused digital healthcare platform. In the last reported quarter, the company came out with quarterly earnings of 9 cents per share, missing the Zacks Consensus Estimate of 10 cents. Over the trailing four quarters, GDRX lagged earnings estimates twice, matched once and surpassed the same on another occasion, with the average negative surprise being 2.5%.
The Zacks Consensus Estimate for GoodRx’s earnings for the current year has been revised downward by 8 cents over the past 60 days. The consensus mark for 2023 earnings has also moved south by 11 cents over the past 60 days. GDRX currently carries a Zacks Rank #5 and a VGM Score of C.
Astronics: Headquartered in New York, Astronics is a manufacturer of specialized lighting and electronics for the cockpit, cabin and exteriors of military, commercial transport, and private business jet aircraft. In the last reported quarter, the company posted a loss per share of 28 cents, wider than the consensus mark of 9 cents. In fact, ATRO has fallen short of earnings estimates in each of the last four quarters, with the average negative surprise being 247%.
The Zacks Consensus Estimate for Astronics’ earnings for the current year has been revised downward by 39 cents over the past 60 days. The consensus mark for 2023 earnings has moved south by 11 cents over the past 60 days. ATRO currently carries a Zacks Rank #4 (Sell).
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 downward by a cent over the past 30 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.
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Beware of These 4 Toxic Stocks Amid Market Uncertainty
Wall Street has been witnessing severe bouts of volatility, which is expected to continue in the near term amid geopolitical tensions, the global food crisis, a spike in coronavirus cases — especially in China — and high inflation. In times of such uncertainty, it’s as important to get rid of fundamentally weak toxic stocks as it is to invest in attractively valued companies possessing fundamental strength.
Toxic companies are usually characterized by huge debt loads and are vulnerable to external shocks. These stocks might illusively scale lofty heights in a given time period but the good show doesn’t last for these overblown toxic stocks, as their current price is not justified by their fundamental strength. Accurately identifying such bloated stocks and getting rid of them at the right time can protect your portfolio.
Overpricing of these toxic stocks can be attributed to either an irrational enthusiasm surrounding them or some serious fundamental drawbacks. If you own such bubble stocks for an inordinate period of time, you are bound to see massive erosion of wealth.
Nonetheless, if you can precisely spot such toxic stocks, you may gain 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. While short selling excels in bear markets, it typically loses money in bull markets.
So, just like identifying stocks with growth potential, pinpointing toxic stocks and offloading them at the right time is crucial to guard one’s portfolio from big losses or make profits by short selling them. Atlantica Yield Plc (AY - Free Report) , Astronics Corporation (ATRO - Free Report) , GoodRx Holdings Inc. (GDRX - Free Report) and Las Vegas Sands (LVS - Free Report) are a few such toxic stocks.
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 4 of the 35 toxic stocks that showed up on the screen:
Atlantica Yield: Based in Brentford, Atlantica Yield owns, manages and acquires a diversified portfolio of contracted assets in the power and environment sectors. In the last reported quarter, AY incurred a loss of 10 cents per share against the consensus mark of a profit of 11 cents. In fact, the company has fallen short of earnings estimates in each of the last four quarters, with the average negative surprise being 102.3%.
The Zacks Consensus Estimate for Atlantica Yield’s 2022 earnings has been downwardly revised by 16 cents over the past 30 days. The consensus mark for 2023 earnings has also moved south by 19 cents to 72 cents, implying a year-over-year decline of 1.8%. AY currently carries a Zacks Rank #5 (Strong Sell).
GoodRx: This California-based company is a consumer-focused digital healthcare platform. In the last reported quarter, the company came out with quarterly earnings of 9 cents per share, missing the Zacks Consensus Estimate of 10 cents. Over the trailing four quarters, GDRX lagged earnings estimates twice, matched once and surpassed the same on another occasion, with the average negative surprise being 2.5%.
The Zacks Consensus Estimate for GoodRx’s earnings for the current year has been revised downward by 8 cents over the past 60 days. The consensus mark for 2023 earnings has also moved south by 11 cents over the past 60 days. GDRX currently carries a Zacks Rank #5 and a VGM Score of C.
Astronics: Headquartered in New York, Astronics is a manufacturer of specialized lighting and electronics for the cockpit, cabin and exteriors of military, commercial transport, and private business jet aircraft. In the last reported quarter, the company posted a loss per share of 28 cents, wider than the consensus mark of 9 cents. In fact, ATRO has fallen short of earnings estimates in each of the last four quarters, with the average negative surprise being 247%.
The Zacks Consensus Estimate for Astronics’ earnings for the current year has been revised downward by 39 cents over the past 60 days. The consensus mark for 2023 earnings has moved south by 11 cents over the past 60 days. ATRO currently carries a Zacks Rank #4 (Sell).
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 downward by a cent over the past 30 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.