As thrilling as it is to search for powerful small-cap stocks that can generate profits and drive portfolio performance, you have to be careful when picking these tiny dynamos. Just as one or two big winners can lead to portfolio outperformance, one or two disasters can easily kill your returns. Figuring out which stocks to avoid (or sell) is just as important as searching for potential winners — especially with smaller issues, because those with poor fundaments often languish in Wall Street’s graveyard of ignored stocks and never fully recover the decline in value.
Fortunately we have Portfolio Grader to help us avoid the poisonous players.
Take a look at a company like the disk drive and data storage company STEC (STEC). This was once a Wall Street darling; the stock fought the trend in 2009 and soared by more than 800% while the rest of the market fell apart. Since then, though, the company has lost market share to competitors and the plan to recapture past glory fell short. Revenues have plunged and profits have disappeared.
Many investors may be trying to bottom-fish the former growth company, but this is exactly the wrong approach in today’s selective stock market. The company is not expected to return to profit anytime soon, and analysts have been increasing the size of the expected losses for this year and next. The stock has been ranked a “sell” or “strong sell” by Portfolio Grader for some time and remains an “F” — fundamentals show no signs of improving.
Jakks Pacific (JAKK) is another example of a much-anticipated turnaround that simply never turned. The company makes toys and games based on characters ranging from Disney princesses to UCF fighters. Investors are constantly trying to bottom-fish the stock, as it is always just one hit product away from huge gains. So far, though, the hit has never happened and the fundamentals remain poor. The stock was downgraded back in February to an “F” and remains a “strong sell” in Portfolio Grader.
Monster Worldwide (MWW) is another company that is always on the cusp of great news in the form of an improvement or a takeover by a larger competitor. Amid all that latent optimism, though, the online job search company has seen steady declines in revenues and profits and earnings have continuously fallen short of analyst expectations. The fundamentals remain very poor and show no sign of improving. The stock was downgraded by Portfolio Grader back in March to an “F” and remains a “strong sell.”
Avoiding huge losses is as important as finding big winners. Always use Portfolio Grader to help you concentrate on the right small-cap stocks as you build your portfolio.
Louis Navellier is the editor of Blue Chip Growth.