If you actively manage the stock investments in your portfolio, you know the importance of foresight and careful consideration. This month, Forbes is offering a list of “April’s Most Dangerous Stocks.” Forbes explains how some stock investments get this “dangerous” rating:
All of the stocks we designate as “most dangerous” have misleading earnings paired with exorbitant valuations. These misleading earnings mean that despite what is reported in the headlines or the earnings reports, earnings quality is very low. The valuations for these stocks are precariously high, in our opinion, as they predict major profit growth against a backdrop declining cash flow.
Such considerations are important as you shuffle the stock investments in your portfolio. Such misleadingly high valuations usually mean that the stock is overvalued and could crumble at any time. If you don’t have the “dangerous” stocks in your investment portfolio, avoid them for now. If you do have them in your portfolio, it might be a good idea to consider selling them now, while there is a chance of a profit (rather than waiting until you have to sell at a loss). Of course, whether or not you sell now depends on your risk tolerance, and whether you think the fundamentals support the stocks in the report long term.
Here are the highlights of the month’s “dangerous” stocks, as Forbes reports:
- Micron Technologies: declining cash flow coupled with a projection of a 2nd quarter loss
- Millipore Corp: flying high right now, but with serious negative cash flow is due for a correction
- Iron Mountain: accounting earnings are up, but the cash flow is drastically down (bad long term investment)
Forbes gets its list from New Constructs, and you can get a more complete list by visiting that Web site.
It is important to remember that stock investments represent a risk. No matter how good your information, you could still lose money.