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5 Toxic Stocks To Avoid Or Sell Short For Profit

Investing success hinges upon precise identification of overpriced stocks and fairly priced ones. However, the over-hyped toxic stocks and the correctly priced stocks are mingled in the marketplace in such a way that it becomes very tough to differentiate between them. Investors who can pinpoint the toxic stocks and discard them at the right time are likely to gain.

Generally, toxic stocks are vulnerable to external shocks and are loaded with high levels of debt. Also, price of the toxic stocks is irrationally high. The unjustifiably high price of the toxic stocks is only short-lived as the intrinsic value of these stocks is lower than the current bloated price.

The inflated price of the toxic stocks can be ascribed to either an irrational exuberance associated with them or some serious fundamental lacunae in the stock. If you own such stocks for a long period of time, you are likely to witness huge erosion in your wealth.

On the other hand, if you can figure out the toxic stocks correctly, you may gain by resorting to an investing strategy called short selling. This strategy allows you to sell a stock first and then buy it when the price falls.

While short selling excels in bear markets, it typically...