Avoid These 10 Stinkers

8/16/2010


At the Forecasts, we devote most of our time to telling subscribers about stocks they should buy. But avoiding losers is as important as finding good stocks.

Just as it does on the upside, our Quadrix® stock-rating system gives us an edge on the downside. In rolling 12-month periods since 1990, S&P 500 Index components with Overall scores of 80 or higher have averaged 16.4% returns, versus 12.5% for all S&P 500 stocks and 10.5% for stocks scoring 20 or below. The table below lists 10 S&P 500 stocks that not only earn low Overall scores, but also look bad based on other statistics. We suggest that investors avoid these stocks and instead consider the A-rated upgrade candidates listed in bold type.

We do NOT advise shorting the stinker stocks. While low-scoring stocks as a whole tend to lag the market, some do well. Sometimes they release a blockbuster product, sometimes they get acquired, and sometimes they solve their problems.

It would not be a surprise to see one of the stocks in this table outperform the market in the year ahead. But it is impossible to know whether one will do well, and if so, which one. As a group, the stocks are likely to underperform the market in the year ahead, and we recommend that you don’t go along for the ride.

BAD STOCKS AND GOOD ALTERNATIVES
Total
— Return —
Sector-Specific
–— Scores * –—
Company (Price; Ticker)
Stock-
Market
Value
($Bil.)
3
Mos.
(%)
YTD
(%)
Quadrix
Overall
Score

12-
Factor
Sector

Reranked
Overall
Industry
Bank of America
($14; BAC)
136.7
(21)
(9)
14
15
17
Financial Svcs.
Bank of NY
($25; BK)
30.8
(18)
(8)
17
9
8
Capital Mkts.
BB&T
($25; BBT)
17.7
(27)
1
14
13
10
Banks
Financials upgrade candidates:
Aflac
($51; AFL), J.P. Morgan Chase ($39; JPM)
EOG Resources
($101; EOG)
25.6
(4)
4
20
39
12
Oil, Gas & Fuels
Massey Energy
($33; MEE)
3.3
(6)
(21)
16
25
18
Oil, Gas & Fuels
Energy upgrade candidates: Apache ($95; APA), Chevron ($79; CVX)
Office Depot
($4; ODP)
1.2
(35)
(32)
9
9
3
Specialty Retail
PulteGroup
($9; PHM)
3.3
(29)
(14)
7
5
3
Homebuilders
Consumer discretionary upgrade candidates:
DirecTV
($39; DTV), Ross Stores ($51; ROST)
Kellogg
($52; K)
19.9
(4)
(1)
39
16
14
Food Products
Consumer staples upgrade candidate: PepsiCo ($67; PEP)
Nucor
($40; NUE)
12.6
(13)
(13)
8
5
5
Metals/Mining
Vulcan Mats.
($41; VMC)
5.2
(25)
(22)
2
10
1
Construction
Materials upgrade candidates:
Lubrizol
($96; LZ), Newmont Mining ($57; NEM)
* Percentile ranks, with 100 the best. Sector-specific scores rate stocks versus others in the same sector.

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