6 Stocks To Short With Recent Negative EPS Surprises And Downgrades

|
 |  Includes: ADI, CQB, DCO, FRM, MELI, UAN
by: Vytautas Drumelis

I ran a screen for potentially overvalued stocks which recently have failed to beat analyst estimates and have been downgraded by the brokers in the last week. These are a few interesting stocks to watch and potentially hedge your long positions with.

1) Mercadolibre, Inc. (NASDAQ:MELI) - together with its subsidiaries, hosts online commerce and payments platforms in Latin America. Its services are designed to provide its users with mechanisms to buy, sell, pay for, and collect on e-commerce transactions. It reported $0.45 EPS in March 2012, failing to reach average analyst estimates of $0.46 (-2.2% surprise). The company has 5 year historic EPS growth of 89.57% per annum. It is worth mentioning that this company is relatively overpriced in terms of P/E (33.96) compared to industry (16.22). On 9th of May, 2012, it was downgraded from Outperform to Market Perform by Raymond James. In addition, on 7th of May, 2012, it was downgraded from Hold to Sell by Stifel Nicolaus. Furthermore, the analysis of insider trades shows large disposition of shares by insiders in the period between 28th of February and 12th of March, 2012. President & Chief Executive Officer, Chief Operating Officer & Executive Vice President and Senior Vice President-Payments sold 757k shares for a total of more than $74.5M (nearly 2% of the company's market capitalization). The stock has reached 52 week highs during that period of $104.5 and has not traded higher since then.

I would also like to touch on technical analysis. It recently has crossed 200 day moving average. The MACD indicator also signals a downtrend.

2) CVR Partners, LP (NYSE:UAN) - engages in the production, distribution, and marketing of nitrogen fertilizers in North America. Its nitrogen fertilizer products include ammonia and urea ammonium nitrate. It reported $0.41 EPS in March 2012, failing to reach average analyst estimates of $0.44 (-6.8% surprise). The average analyst price target for this stock is $23.67, which is below the current market price $24.45 by 3.2%. On 9th of May, 2012, it was downgraded from Hold to Strong Sell by Dahlman Rose & Co. It has crossed the 200 day moving average yesterday and the MACD indicator signals a downtrend.

3) Analog Devices, Inc. (NYSE:ADI) - engages in the design, manufacture, and marketing of analog, mixed-signal, and digital signal processing integrated circuits (NYSE:ICS) used in industrial, automotive, consumer, and communication applications. It reported $0.46 EPS in January 2012, failing to reach average analyst estimates of $0.48 (-4.2% surprise). The company has 5 year historic EPS growth of 14.41%, but consensus estimates shows slowing growth with only 8.85% expected growth per annum. It is worth mentioning that this company is relatively overpriced in terms of P/E (16.94) compared to industry (14.03). On 9th of May, 2012, it was downgraded from Buy to Neutral by UBS.

4) Chiquita Brands International Inc. (NYSE:CQB) - together with its subsidiaries, markets and distributes bananas and fresh produce under the Chiquita and other brand names worldwide. It reported $0.32 EPS in March 2012, failing to reach average analyst estimates of $0.04 (-87.5% surprise). On 10th of May, 2012, it was downgraded from Buy to Neutral by Janney Montgomery and on 9th of May, 2012, it was downgraded from Buy to Hold at Jefferies. However, the company has 5 year historic EPS growth of 21.80% per annum. The average analyst price target for this stock is $10.50, which is significantly higher than current market price of $5.70. In addition, it is worth mentioning that this company is relatively cheap in terms of P/E (6.33) compared to industry (16.66). It also has a good PEG ratio of 0.63.

5) Furmanite Corporation (NYSE:FRM) - through its subsidiaries, provides technical services in Europe, North America, South America, Latin America, the Middle East, Africa, and the Asia Pacific. It reported negative ($0.02) EPS in March 2012, failing to reach average analyst estimates of $0.09. The company is relatively fairly valued in terms of P/E (13.42) compared to industry (13.88). However, on 10th of May, 2012, it was downgraded from Overweight to Equal Weight at Stephens.

6) Ducommun Inc. (NYSE:DCO) - engages in designing, engineering, and manufacturing mission-critical aerostructure and electronics, and electromechanical components and subassemblies. It reported $0.23 EPS in March 2012, failing to reach average analyst estimates of $0.32. In fact, it has failed to reach analyst estimates in the last three quarters. On 9th of May, 2012, it was downgraded from Buy to Hold at BB&T. However, the company is relatively undervalued in terms of P/E (5.71) compared to industry (17.65).

Business descriptions and financial data are taken from Yahoo Finance.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.