Over a mountain of woes and against heightened volatility, the U.S. stock market continues its heroic bull run, hitting multiple highs on several occasions this year. Stepped-up economic activity, rising business and consumer confidence, recovering housing fundamentals and continued job creation have lent tremendous support to the economy.
But will these factors actually continue to drive the stocks higher in the coming months? Geopolitical tensions, a global slowdown, lower oil prices, the collapse in the euro and persistent weakness in emerging economies like China and Brazil have cast a dark cloud on the stock world, resulting in many high-flying stocks that might soon run out of steam. Most importantly, a strong U.S. dollar is making exports less competitive, thereby hurting sales and profit margins of the big American firms.
Given this, many stocks have generated handsome returns in the year-to-date timeframe. However, surging stocks do not always reflect the true picture of the company’s growth potential. These might actually be fooling investors and the odd ones that need to be weeded out from one’s portfolio.
The best performers are not always the fundamentally sound stocks. This can easily be justified with our Zacks Stock screener, which will prevent you from being an April Fool.
We have screened through a number of following metrics to find out the phony highfliers:
1. Double-digit year-to-date returns
2. Unfavorable Zacks Rank #4 (Sell) or 5 (Strong Sell) or 3 (Hold).
3. Current year negative EPS growth
4. Negative current year earnings estimate revision over the past three months
5. Bottom Zacks Industry Rank
Below are three stocks that have been misleading investors so far in the year and need to be brought to notice.
Carrizo Oil & Gas Inc. CRZO – Up 19.8%
Based in Houston, TX, Carrizo Oil & Gas is engaged in the exploration, development, and production of oil and gas in the Barnett Shale area in North Texas and along the Texas and Louisiana onshore Gulf Coast regions.
Though the stock has risen nearly 20% so far in the year, the outlook seems bleak. This is because the stock has seen lackluster earnings estimate revisions from $2.22 to $0.03 over the past 90 days. Earnings per share will likely decline over 98% for the current fiscal year.
Further, a PEG ratio of 109.54 is much higher than the industry average of 3.45, suggesting that the stock is overvalued at current levels and will likely drop sharply in the days ahead. Moreover, Carrizo Oil & Gas currently has a Zacks Rank #4 and a poor Zacks Industry Rank in the bottom 39%.