There are times when investors should consider bottom fishing for stocks. When the market or sector sells off sharply, we tend to see the baby thrown out with the bathwater as Wall Street sells the good as well as the bad. When that happens you can often find great stocks at bargain prices.
Unfortunately, this is not one of those times.
As the market goes higher, the big buyers are becoming much more selective and only the stocks with the very best fundamentals and price action should gain your attention right now. The stocks with poor fundamentals and quantitative action are very dangerous and should be avoided. Fortunately, we have Portfolio Grader to the hard work for us.
Aeropostale (ARO) is one stock that investors have been trying to bottom fish with disastrous results. The company missed earnings estimate for three quarters in a row and has been having trouble generating any sort of sales momentum. The teen market is fickle — it’s great when they love you, but if you lose their favor it’s difficult to get them back in the store. Analysts have been downgrading ARO stock and lowering their estimates. The estimate for 2014 went from a solid profit to a loss, and this negative action has been reflected in its Portfolio Grader ranking. The stock was downgraded to an “F” all the way back in April and remains a “strong sell.”
McDermott International (MDR) is another stock that has attracted some interest from bottom fishers at exactly the wrong time. The engineering and construction company specializes in large oil and gas projects, including offshore platforms and infrastructure. The company has struggled to deliver projects on time and on budget, and that underperformance is hurting its business. MDR is seeing its all-important backlog of projects decline and has seen very poor booking results for future projects. Customers do not trust the company to get the job done in a timely and cost-effective manner, which does not bode well for the company or the stock in the months ahead. The stock was downgraded to an “F” back in May and remains a “strong sell.”
Wall Street is turning its focus from the garbage stocks, and the big money is focused on quality stocks with the very best fundamentals. Avoid the urge to bottom fish poorly performing companies as they are unlikely to attract any buying pressure and will see additional selling in December as investors book tax losses.
Louis Navellier is the editor of Blue Chip Growth.