Nightmare On Wall Street: 3 Bearish Stocks To Avoid - Wynn, Las Vegas Sands, Peloton

Oct. 31, 2021 6:00 AM ETLas Vegas Sands Corp. (LVS), PTON, WYNNBB, SPCE, BB:CA71 Comments
Steven Cress profile picture
Steven Cress
16.76K Followers

Summary

  • We’ll look at how to spot stocks at risk of performing poorly - The Walking Dead - and being turned broke.
  • We’ll discuss tips for creating a portfolio to identify high-risk stocks using the Seeking Alpha Grading System.
  • The bearish stocks featured here, Wynn, Las Vegas Sands Corp., and Peloton may help you understand why it’s vital to consider our Quant Rating System, which has a track record of significantly outperforming the S&P 500.
Forex: Bear and bull

Zonf/iStock via Getty Images

This fall brought an incredible drought for the S&P 500: 42 days without gains of more than 1% through mid-September, something it had not seen since January 2020. Volatile price swings are happening, and buying the dip can offer upside potential. The question is, for how long, and which stocks can genuinely bear it?

The second question has a clearer answer, from my perspective: Stocks with very bearish ratings, based on our Seeking Alpha “Quantamental” analysis, are at the largest risk of going south. Below we see one such example we’ll discuss at greater length later, Peloton (NASDAQ:PTON) - a stock which Cathie Wood, for one, has been offloading lately:

PTON FACTOR GRADES

Source: Seeking Alpha Premium

My advice? Heed these warnings. While some consider bearish stocks an opportunity to buy at a lower price, it's crucial to assess a company's fundamentals. And above we see a snapshot of Peloton’s, incorporating both trading algorithms and vital collective attributes of value, growth, profitability, EPS Revisions, and stock price momentum. Here at Seeking Alpha, we emphasize why it’s important to create and evaluate your portfolio before jumping into bearish ideas. A look at the chart below will show you how accurate SA has been over the years at identifying weak stocks as poor performers compared to the performance of the S&P 500 as a benchmark.

SA BEARISH RECOMMENDATIONS VS SP500

Stocks that underperform the S&P 500 are dead money. Stocks underperforming also carry the risk of losing money. Let’s take a closer look at those risks - and some specific stocks to avoid, in my opinion.

What is a Bearish Stock?

Bearish stocks are stocks expected to underperform their sector and are also at risk of underperforming the overall market, which is why we prefer avoiding them due to negative compounding. These stocks should be approached with caution; the goal of investing is, of course, to grow, and equally important is measuring risk, as well as avoiding losers. Based on a quantitative model I’ve spent years testing, re-testing, and refining, results indicate that the probability of loss is higher with the stocks that receive a bearish rating, which is important when your goal is long-term wealth accumulation.

For most of us, the goal with long-term wealth accumulation is to try and limit the downside. For every loss incurred, a more significant gain is required to get back to even. For instance, if Wynn Resorts (NASDAQ:WYNN), which we’ll discuss in this article, is trading at $100 and contracts 20%, it’s now worth $80. Even if it rebounds 20%, you’re only at $96, which is $4 less than the $100 you purchased the stock at. So, you need a 25% gain to rebound back to $100 and break even.

That’s a practical example as to why my quant rating system emphasizes a focus on good grades and minimizing the downside to achieving a long-term goal of growing a portfolio. If you already have a portfolio with a financial institution, brokerage or are simply keeping a list in a spreadsheet, try creating a Seeking Alpha portfolio. With our portfolio tool, you will stay informed about the market news and identify stocks that are the best fit for your investment needs. Notably, this tool really will help you to identify the deadbeats and walking dead in your portfolio. It is well worth the few minutes to use this tool because it can save you from catastrophic losses.

How to Create a Stock Portfolio

Seeking Alpha’s Create a Portfolio is an easy-to-use tool that can identify which companies you like best – in this case, we are focusing on bearish stocks. Not only will our screeners allow you to find stocks using our proprietary quant model, but we hope that having eliminated riskier options, you will find hidden gems with the potential to be your next great stock play while creating the custom portfolio from scratch that meets your needs.

  1. Click My Portfolio at the top of the Seeking Alpha page. Next, click the Create Portfolio button. If you already have a Seeking Alpha account, sign in using your credentials. Otherwise, you will need to create an account.

CREATE A PORTFOLIO Source: Seeking Alpha Premium

Once you are signed into the Seeking Alpha site, one of the quickest ways to create a portfolio is by linking one from your outside financial institution or brokerage account, by clicking Link Brokerage Account. If you do not want to link a portfolio at an outside institution, or if you would like to use this tool as a watch list, simply click Create New Portfolio.

LINK ACCOUNT

Source: Seeking Alpha Premium

2. Next, type a NAME for your portfolio. For this example, I named my portfolio S&P Bearish Stocks.

NAME PORTFOLIO

Source: Seeking Alpha Premium

3. Next, you will add the names of the stocks or ticker symbols that you want in your portfolio (for this example, I added all stocks from the S&P 500). Then click DONE.

ADD TICKER SYMBOLS

Source: Seeking Alpha Premium

4. Now you have a portfolio that you can sort however you like, by clicking any of the options like Symbol, Price, Change, Quant, along the top of the chart. For this example, I clicked Quant to provide me with the list of the most bearish stocks according to our Quant Ratings.

S&P 500 BEARISH STOCKS Source: Seeking Alpha Premium

As you can see from the image above, Wynn Resorts is the most bearish stock in this portfolio, with Las Vegas Sands Corporation (NYSE:LVS) not far behind. You can learn more about each stock by clicking on them individually and reviewing their metrics, Factor Grades, what analysts are saying, and more.

Here, we will focus our attention on WYNN and LVS to better understand why our Quant Ranking system is so useful. When you have very bearish indicators, as our system highlights in red as a warning, proceed with caution. These types of stocks typically lack fundamentals.

Bearish stocks lurking in the S&P 500

Let’s talk a little about the fundamentals behind WYNN stock and LVS stock. We saw above that WYNN and LVS are, unfortunately, two of the worst-performing stocks in the S&P 500. When you compare both stocks’ 10-year price return versus the S&P 500, Wynn is -23.65%, LVS -5.50%, S&P 500 +256.13%. Fundamentally (and the Quant Ratings, chart, and Factor Grades will substantiate below), the metrics clarify other reasons why they are bearish.

S&P 500 vs WYNN vs LVS 10-YR PRICE RETURN

SP500 VS WYNN VS LVS Source: Seeking Alpha Premium

WYNN QUANT RATING/GRADES

WYNN QUANT/FACTOR GRADES Source: Seeking Alpha Premium

LVS QUANT RATING/GRADES

LVS QUANT RATING/GRADES Source: Seeking Alpha Premium

From a momentum and fundamental stance, both WYNN and LVS are best avoided at this time. When you look at their balance sheets, both are highly levered as evidenced by their high Long-Term Debt to Total Capital Ratios of 91.83% and 85.25%, respectively. Neither company has been able to produce a profit since the onset of COVID, resulting in negative net income and shrinking margins.

You’ll also need to factor in the double-digit growth in interest on their long-term debt (WYNN – 12.92%, LVS – 38.46% year-over-year through June 2021), rising costs due to inflation, and moderating economic growth resulting from slowing consumer spending on hospitality and leisure. The companies have also never really returned to their spending habits pre-COVID, and what’s worse, the macro backdrop for a gambling stock doesn’t bode well going forward.

Then consider the geopolitical aspects. With nearly 50% of revenue coming from the world’s most prominent gambling hub, Macau, the significant geopolitical risks that naturally exist with US-based companies operating in China has only become more problematic as China’s clampdown on casinos and the US, in general, has prompted both companies combined to lose approximately $5 billion in market value in one week during the month of September. A plethora of negative sentiment surrounds these bearish companies, including financial, technical, lack of momentum, fundamentally, any or all the above.

WYNN, LVS, SP500 PRICE RETURN COMPARISON

WYNN, LVS, SP500 PRICE RETURN COMPARISON Source: Seeking Alpha Premium

Bearish Stocks Uncovered

In addition to bearish S&P 500 stocks like WYNN and LVS, I’d like to briefly address a few others that have been trending and hit our bearish quant ratings: Peloton, Virgin Galactic (SPCE), and BlackBerry (BB).

PTON, SPCE, BB QUANTS Source: Seeking Alpha Premium

Bearish Meme Stocks

As I discussed in a previous article, Digital World Acquisition Corp. (DWAC) “and most other meme stocks and SPACs are very risky: They are being driven not by fundamentals or quantitative metrics but by short-term (daily) sentiment.” With an F grade for Revenue Growth year-over-year (YoY), at -64.29%, Virgin Galactic has a profitability potential so far out of this world that my grandchildren are likely to be done with college by the time they turn a profit!

SPCE VALUATION GRADE

SPCE VALUATION GRADES Source: Seeking Alpha Premium

SPCE is a bearish stock that has spent billions to build spacecraft, with space flight affordability out of reach for nearly the entire population. With that being said, SPCE only generated $600,000 in revenue, resulting from a negative $419.9 million net income as reported in June 2021. This renders the company essentially worthless in value.

SPCE REVENUE GROWTH

SPCE REVENUE GROWTH Source: Seeking Alpha Premium

BlackBerry, another meme stock that piqued the ‘Reddit Revolution’ interest earlier this year, is bearish and appears to face challenges as the company looks to reinvent itself from a once behemoth cell phone manufacturer to a cybersecurity software provider. The growth metrics below show the company is still far off from its vision becoming a reality.

BB GROWTH GRADE Source: Seeking Alpha Premium

Peloton is the last of my popular yet bearish stock examples. The interactive bike was incredible during the pandemic when isolation was socially mandatory, and streaming with remote participants was all the buzz. Peloton was the stay-at-home product and stock of the year during the height of the pandemic. But times have changed; people are vaccinated; the nation is reopening; things are getting back to normal. Why would I spend $2,000 for a bike when I can pay $25/month to go back to the gym and socialize? Factor in the supply chain disruptions and the likelihood of PTON experiencing the same growth as during the pandemic - it amounts to a bearish outlook and poor quant grades.

PTON VALUATION GRADE

PTON VALUATION Source: Seeking Alpha Premium

PTON PROFITABILITY GRADES

Source: Seeking Alpha Premium

With Very Bearish ratings, we hope that, using these stocks as examples and comparing them against our quant rating system, we have provided you with a starting point to do further research, should you remain interested in assessing your stocks and identifying potential deadbeats and the walking dead.

Conclusion: Bearish Stocks Are Tricky, Not A Treat

From a perceived value perspective, bearish stocks come with risks. Occasional high growth periods and volatility are warning signs when purchasing shares of these companies at every turn. When it comes to identifying bearish stocks or companies with poor investment fundamentals, our goal at Seeking Alpha is to help you instantly characterize stocks with solid fundamentals and strong investment metrics and avoid the stocks with poor fundamentals Our Quant System can readily identify these stocks. We’ve got dozens of stocks for you to choose from with great fundamentals, including Top Technology Stocks, Top Value Stocks, and many more. Feel free to create your portfolio using the tools we’ve outlined.

If you do not have Seeking Alpha Premium I will provide you with a free trial to test out the tools so you can evaluate your stocks. Go here to start a 14-day free trial and start putting our Quant system to work for you.

This article was written by

Steven Cress profile picture
16.76K Followers
Head of Quantitative Strategies at Seeking Alpha. Data analysis and interpretation have taken center stage in my career. For my purpose, the interpretation of data is the process of making sense of statistics that have been collected, analyzed, and scored. This skill-set has served as a solid foundation for me to identify trends and make transparent predictions in the course of money management. It has also allowed me to develop user-friendly web-based tools that furnish individuals with the indicators and signals to instantly interpret the strength or weakness of a company's value. Importantly, this expertise has helped me build Wall Street trading desks, launch international hedge funds, and construct a SaaS FinTech investment research company. Prior to my role at Seeking Alpha as the Head of Quantitative Strategies, I founded a Hedge fund and Asset Management company (Cress Capital Management), I was the Head of International Business Development at Northern Trust, and the majority of my career was at Morgan Stanley running a proprietary trading desk.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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