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REITs and Financial Stocks Are “Most Dangerous” for December

|Includes:Discover Financial Services (DFS), EQY, ESS, EWBC, RSO

The Decem­ber ver­sion of our Dan­ger­ous Stocks report is now avail­able. Note that Barron’s recently rec­og­nized our Most Attrac­tive Stocks port­fo­lio as #1 over the prior 12 months amongst the best of the Wall Street research firms.

Lots of REITs and finan­cial stocks make this month’s list. Dis­cov­ery Finan­cial Ser­vices (DFS) and Essex Prop­erty Trust (ESS) make the cut for the large cap Most Dan­ger­ous this month. We also rec­om­mend sell­ing Equity One (EQY), East West Ban­corp (EWBC) and Resource Cap­i­tal Corp (RSO) on the small cap list. All of these stocks have mis­lead­ing earn­ings, which means their reports earn­ings are pos­i­tive and ris­ing while their eco­nomic earn­ings are neg­a­tive and declin­ing. In addi­tion, the val­u­a­tions for these stocks are very high. For exam­ple, the cur­rent stock prices of DFS and ESS imply those com­pa­nies prof­its will grow by 300% or more. The cur­rent stock prices of EQY, EWBC and RSO imply those com­pa­nies prof­its will grow by as much as 1000% or more. The high expec­ta­tions in the prices of these stocks expose investors to lots of down­side risk and lit­tle upside potential.

Note that we offer free com­pany val­u­a­tion reports for 4 of the com­pa­nies included in our Most Attrac­tive and Most Dan­ger­ous Stocks newsletters.

Here is a quick overview for the Decem­ber reports.

  • 4 new stocks make our December lists.
  • The Dan­ger­ous Stocks (+3.6%) rose while the S&P 500 fell (-1.5%) and under­per­formed as a short port­fo­lio last month.
  • Most Dan­ger­ous Stocks have mis­lead­ing earn­ings, which means reported earn­ings are ris­ing while true eco­nomic earn­ings are declining.

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