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After hitting new market highs for multiples days in a row, I thought I would look for companies that could be possible short candidates for when the market reverses course and has a correction. The Federal Reserve I believe is responsible for the "rising tide" in the stock market, which has taken stock prices to new highs, but has also taken lower quality stocks higher as well. Below is a list of my goals that I want to accomplish when screening for short candidates.

  • Goal #1: Pick stocks that have performed well this year, but have underperformed over the past 1 year time-period.
  • Goal #2: Pick stocks that are not growing earnings this year, and which have not grown earnings in the past 5 years.
  • Goal #3: Pick stocks that are not profitable which when coupled with not growing earnings is a desirable short criteria.
  • Goal #4: Pick stocks that do not pay a dividend, because if there is a correction, investors are more likely to hold on to dividend paying stocks and sell non-dividend paying stocks first.
  • Goal #5: Pick stocks that carry a heavy debt, which can be a factor in restricting growth.

Screener Criteria

I will be using the Finviz.com screener to find stocks that meet my goals of finding short candidates.

  • Market Cap: Over $300 Million
  • Performance YTD: > +10%
  • Performance Year: Down
  • EPS Growth This Year: Negative
  • EPS Growth Past 5 Years: Negative
  • Dividend Yield: NONE
  • Debt/Equity: > 0.5
  • Gross Margin: < 40%
  • Profit Margin: Negative

Results

After entering the screener criteria, I found that four stocks met all the criteria. The four stocks are Advanced Micro Devices (NYSE:AMD), ON Semiconductor (NASDAQ:ONNN), RadioShack (NYSE:RSH), and Weatherford International (NYSE:WFT).

Ticker

Company

Industry

Debt/Equity

Performance YTD

Performance Year

AMD

Advanced Micro Devices, Inc.

Semiconductor - Broad Line

4.93

47.50%

-52.23%

ONNN

ON Semiconductor Corp.

Semiconductor - Broad Line

0.69

14.61%

-3.69%

RSH

RadioShack Corp.

Electronics Stores

1.27

63.68%

-30.88%

WFT

Weatherford International Ltd.

Oil & Gas Equipment & Services

0.98

20.46%

-2.74%

Thoughts and Observations

This is my first article where I specifically was searching for stocks that could be short candidates, so it was different for me since I usually only look for long-only ideas. I believe I accomplished all my goals I set to achieve, which I believe are a good combination of criteria to find stocks to potentially short.

As the table above shows, the four stocks I found have performed exceptionally well this year, with three of the four stocks outperforming the S&P 500 (NYSEARCA:SPY). Based on the facts that the companies are not profitable, are not growing earnings, do not pay a dividend, and have large debts, I can't see any reason to own any of these companies, and the outperformance they have had, I believe, is potentially a good short opportunity. When a market correction does occur, I believe the stocks in my screen along with other stocks with similar characteristics will be the first stocks that will be sold from portfolios.

Source: Short Candidates For When The Tide Goes Out