Warning: 5 Popular Stocks You Need To Sell Now

These are five of the most widely owned stocks in the market. You have, without a doubt, heard of them, and it’s very possible you even own a few.

#-ad_banner-#Despite being featured prominently in the media and being held by some of the world’s top investment gurus, I wouldn’t touch any of them with a 10-foot pole.

One of these stocks is owned by hedge fund titan Steve Mandel of Lone Pine Capital, who holds 2.8 million shares of this casino and resort operator. But it has collapsed 25% over the past six months.

I’m also recommending you stay away from a blue-chip heavy equipment manufacturer that has shed 18% in the past 26 weeks, a much-touted alternative energy stock that is down 31%, and a huge oil services firm that lost a whopping 36% during that same time. 

Plus, there’s a popular chipmaker that is down 15% in the past six months and has basically been dead money for the past two years.

Although these companies are very different, they all have two things in common.

First, each of these stocks has low relative strength (RS).

Relative strength compares the price performance of a stock against every other stock in the market over the past six months. A stock’s RS can range from 0 to 100. The lower a stock’s score, the worse its performance relative to its peers. It’s a tool that helps us numerically define stocks in an uptrend or downtrend.

But more important, it has been proven that stocks with high RS are more likely to continue to outperform the market, while stocks with low RS underperform.

AQR Capital Management performed a study looking at U.S. stocks going all the way back to 1927. They found that, at any given time, the stocks that were outperforming 80% of the market continued to outperform for at least the next 12 months. And the bottom 20% of performers continued to underperform over the same period.

The second similarity between these laggards is their poor score on a key fundamental measurement. This score also ranges from 0 to 100, and the higher the better. 

It is one of the most important measures of a company’s health and also one of the most reliable numbers in finance. While companies can manage earnings to meet analysts’ expectations or inflate balance sheet assets using misleading reserve allowances, this metric is much harder to fake.

And a low score means a company could struggle to reinvest in its business, pay dividends or pay down debt. 

My stock-ranking system combines an equity’s relative strength and this fundamental score, giving the stock a total score ranging from 0 to 200. 

The higher the score, the more likely the stock is to move higher in the short to medium term. In just the past 12 months, for example, we’ve closed positions for 66%, 114% and even 242% profits by buying stocks with scores between 140 and 200.

The lower the score, the more likely the stock is to lag the market — or worse — over the coming weeks and months. And these big-name stocks are flashing some of the lowest scores I’ve ever seen.

Stock Score 6-Month Return
SanDisk (NASDAQ: SNDK) 38 -15%
Wynn Resorts (NASDAQ: WYNN) 34 -25%
Halliburton (NYSE: HAL) 29 -36%
Caterpillar (NYSE: CAT) 23 -18%
First Solar (NASDAQ: FSLR) 8 -31%


Flash memory maker SanDisk (NASDAQ: SNDK) is facing significant headwinds in the form of weaker demand and stiffening competition. The company has been lowering its guidance, yet some analysts are calling the sell-off a huge buying opportunity. Its score of 38 out of 200 in my stock-ranking system tells me otherwise. The popular tech stock is likely to continue to underperform.

Casino operator Wynn Resorts (NASDAQ: WYNN) has taken it on the chin thanks to fears over its operations in Macau following a crackdown on corruption by Chinese regulators. January marked the eighth consecutive month gaming revenue declined in the Asian gambling mecca, where Wynn derives the majority of its revenue. The stock’s score of 34 tells me this is no place to speculate on a rebound anytime soon.

Halliburton (NYSE: HAL), which provides oilfield services and products worldwide, has been cut in half with the 50% collapse in oil prices. When crude prices surged 8% in one day last week, many investors guessed they may have finally bottomed and jumped on HAL and other energy stocks. While bottom-fishers may be itching to buy shares here, with a score of just 29, I’m certainly not going to bet on HAL.

Heavy equipment manufacturer Caterpillar (NYSE: CAT) has been crushed on capital equipment cutbacks and the depressing effect of the strong U.S. dollar on international profits. While the blue chip yields 3.4%, its score of 23 tells me it’s not going to deliver much in the way of capital gains anytime soon.

First Solar (NASDAQ: FSLR) is the clear leader in its industry, but it took a beating as investors sold all things energy related in the second half of 2014. Since the industry’s fundamentals are not directly related to oil prices, some may find this unfair. But with a measly score of 8, I don’t care about fair. I’d stay far, far away.

According to my system, these five stocks are in the bottom 18th percentile of the 1,416 stocks I track. Personally, I only recommend stocks with a score above 140.

For example, back in August, the system triggered a “buy” in a pharmaceutical company you likely hadn’t heard of, Hospira (NYSE: HSP), whose primary drug Naloxone is used to combat opiate addiction. At the time, HSP was flashing a score of 160.

Fast forward six months, and the stock is up an outstanding 60%. Many of you may have heard about it this week as Pfizer (NYSE: PFE) announced it was planning to pony up about $17 billion for the company. 

While the system doesn’t purposely screen for buyout candidates, I’m not surprised that a company with such strong fundamentals and technical strength was a target.

I’ve also recommended an airline with a score of 161 that’s up 83% in nine months, a health care company with a score of 192 that’s up 52% in less than six months, and a semiconductor stock with a score of 163 that’s returned 72% in seven months.

If you want to learn more about this powerful system, I’ve compiled a free report that explains how I use it to spot stocks before they make huge runs in a matter of weeks or months. Click here to access it.

 

This article originally appeared on ProfitableTrading.com: Warning: 5 Popular Stocks You Need to Consider Selling Now​