Investment Opportunities

Is the Party Over? Here Are 10 Stocks to Avoid Now

It’s hard to believe there are only a handful of hours left in 2019.

And what a year it’s been!

Over the past several weeks, my focus has been on helping investors position themselves for the biggest possible gains in 2020.

And we’re seeing this pay off.

In mid-November, I wrote about 10 small caps expected to see revenue grow at least 100% in 2020. Even though Sage Therapeutics (Nasdaq: SAGE) has buckled and Tellurian (Nasdaq: TELL) has slipped since then, the rest have gained…

Chart - 10 Smallcaps Growing Revenue

In fact, GSX Techedu (NYSE: GSX) has broken out, surging 50% and setting new 52-week highs!

But those aren’t the only big winners we pinpointed for investors here.

To kick off December, I wrote about 10 microcaps and nanocaps to watch for the upcoming year. These tiny stars are shining bright with revenue projected to increase more than 1,000%!

Already, several have slingshot higher…

Chart - 10 Microcaps and Nanocaps

NewLink Genetics Corp. (Nasdaq: NLNK) popped more than 125% in recent weeks! And it’s currently up more than 50% since December 3.

Meanwhile, Matinas BioPharma Holdings (NYSE: MTNB) and Motus GI Holdings (Nasdaq: MOTS) have gained more than 30% since then as well.

Those are all fantastic runs.

But I also want to warn investors about stocks that might be overheated. So today, let’s look at some companies that are flying high but might hit some turbulence soon.

The Party’s End?

There are a handful of simple tenets that I adhere to in investing.

Maybe the most important one is that shares must ultimately follow revenue and earnings.

A great company that’s posting great numbers can be held hostage and whipsawed by short sellers or some other anchor. But eventually, those fundamentals will win out.

Investors and Mr. Market will recognize its real value and shares will break those chains to soar higher.

And this is why one of my favorite – and most profitable – trading strategies is to target high-growth companies whose shares have suffered a recent and pronounced pullback.

Maybe the company missed overly optimistic earnings expectations… Maybe its business is seasonal… Maybe it caught got up in negative headlines. It doesn’t matter because shares will ultimately return to their real worth.

Of course, the opposite is also true.

And that’s what we’re delving into today: companies whose shares are trading at 52-week highs but whose earnings per share (EPS) are projected decline this quarter.

So here are 10 highfliers that might see their wings clipped soon…

Chart - Stocks at Highs With Negative Projected Growth

The biggest decline is expected to come from Nevro Corp. (NYSE: NVRO), which also happens to be enjoying a fantastic run. Shares of the medical device company hit a new 52-week high of $117.70 last week. And they’ve risen 200% in 2019!

But analysts are expecting to see Nevro’s fourth quarter loss per share increase 103% from $0.32 a year ago to $0.65. Meanwhile, revenue is projected to increase a mere 1.6% to $109.65 million.

Next, Easterly Government Properties (NYSE: DEA) is projected to see a 100% decline in earnings. The real estate investment trust (REIT) leases commercial properties to the U.S. government. Shares have gained nearly 50% in 2019, hitting new highs.

But Wall Street is looking for fourth quarter EPS to be flat compared with a gain of $0.01 a year ago. And then Easterly is expected see its loss increase to $0.03 per share in the first quarter of 2020.

Shares of iStar (NYSE: STAR) are up nearly 60% year to date, trading at new 52-week highs. But the REIT is also projected to see a steep EPS decline. For the fourth quarter, analysts are forecasting a nearly 100% drop in earnings from $0.53 per share a year ago to $0.02.

And the outlook for 2020 doesn’t get any better. IStar is expected to see full-year EPS fall from $4.07 in 2019 to $0.78 in 2020.

Ascendis Pharma A/S (Nasdaq: ASND) surged more than 105% in 2019. It hit new all-time highs of $138 last week. But gains for investors could be more difficult ahead.

In the fourth quarter, the biotech is projected to see its loss per share increase more than 55% to $1.33. At the same time, analysts are forecasting revenue to fall more than 90% to $1.04 million.

There is a market philosophy that momentum begets momentum.

Shares soar higher because shares are soaring higher. And the party continues until something brings a screeching halt to the celebration.

Often, that party pooper is fundamentals.

These 10 companies are trading at 52-week highs. Many are celebrating an extraordinary year…

Chart - Performance Year-to-date

But with the year winding to a close – and earnings declines on the horizon – the cheers might turn to jeers.

Investors will want to make sure they’re protected from a potential drop.

Here’s to high returns,

Matthew


About

Matthew’s expertise ranges from classic industries such as oil and mining to cutting-edge markets like small cap tech, cannabis, 3D printing and cloud computing. With almost two decades of financial experience under his belt, Matthew’s knack for finding market trends never fails to surprise us, which is why we keep a close eye on his free e-letter, Profit Trends.

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