Picking which stocks to sell or avoid can be a tricky business. Even stocks that are deemed “overvalued” can continue trading on momentum for days, weeks and even months before correcting. However, stocks that have stretched valuations typically have the furthest to fall in the event of a sell-off, making them prime candidates to avoid if you’re looking to reduce the risk in your portfolio.
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Sometimes, however, even stocks that have traded down dramatically should still be avoided. Rather than trying to grab a falling knife, investors are best served simply by getting out of the way of these consistent losers.
To help identify stocks from both camps that should be avoided, GOBankingRates looked at data published by Barron’s regarding an academic study conducted by three finance professors: Kent Daniel of Columbia Business School, Alexander Klos of Germany’s Kiel University, and Simon Rottke of the University of Amsterdam. The interesting thesis of these professors – which was backed up by hard market data – was that stocks that are hard to sell short are ripe for declines in the coming year. This was particularly true if the stocks were at the extremes of the market – either leaders or losers.
GOBankingRates cross-referenced the data from Barron’s for 2022 with current analyst ratings. The stocks that surfaced with ratings of “hold” or worse made the list of top 5 stocks to avoid.
There’s no guarantee these stocks won’t bounce – or continue to rise – in 2023. However, given the historical data and current analyst outlooks, these stocks might be particularly risky to own.
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