2 Strong Sell Stocks to Short

Last week brought quite a lot of uncertainty to the financial markets. While the flow of economic data resumed, catching up on all the salient factors was, as expected, a confusing task.

On top of that, worries surrounding sky-high AI valuations led to a wider selloff, pulling most of the market into the red. With the exception of micro-cap stocks, all categories were firmly in the red, and the S&P 500 ended the week with a 1.65% loss.

The drop occurred in spite of generally positive corporate earnings, while the Labor Department’s monthly report painted a mixed macro picture, with unemployment hitting a 4-year high.

There’s a definite lack of positive catalysts — and mixed outlooks regarding the likelihood of a rate cut in December seem primed to increase overall volatility going forward. So, what should you do in circumstances such as these?

The big players are trimming their positions and reducing exposure — and until a positive catalyst emerges, the movement that you’ll be seeing will skew toward the downside. Thankfully, this is something you can turn to your advantage — by simply turning to our…

Stocks to Short Strategy

Our quant rating system uses 115 factors to evaluate roughly 4,600 stocks on any given day. Those insights ultimately lead to our proprietary metric — a stock’s Zen Rating.

Out of those roughly 4,600 stocks, only the top 5% are given a Zen Rating of A, equivalent to a Strong Buy rating.

That’s a great start for narrowing down your search if you want to go long — but there are times like now, where market dynamics simply don’t support an upside thesis. 

Instead, in scenarios such as these, you can take the inverse approach — by focusing on stocks with the lowest rating, F. These are stocks that rank in the bottom 5% — and as you may have guessed, they are prime targets for short selling.

However, that leaves you with roughly 230 candidates — and we can narrow the search down even further by turning to one of our exclusive Zen Strategies.

These 11 portfolios are finely-tuned to provide excess returns, and each of them consists of 7 stocks. With increased volatility on the horizon and a bearish sentiment in the air, today, we’ll be taking a look at a strategy that has already provided an 11.09% return since the beginning of November, blowing the S&P 500’s 3.38% loss out of the water. It is, of course, our Stocks to Short strategy.

With weakening fundamentals, disappointing earnings, and tightening margins, these are 2 stocks that you might want to consider shorting…

Westlake (WLK)

Our first entry is a struggling chemical and material manufacturer. Westlake currently ranks in the bottom 1% of the stocks that we track on the whole, and is the second-lowest rated stock in the Specialty Chemical industry, which has an Industry Rating of C.

The business has missed earnings estimates for five quarters in a row — in its last quarterly report, it marked a loss of $0.29 per share, versus estimates of a $0.21 gain per share. In fact, Westlake’s margins have slipped from 0.8% to -8.3% in the past year.

WLK’s revenues are forecast to grow by just 2.36% per year, and the company is currently unprofitable. It ranks in the bottom 1% according to Value — and with Return on Assets forecast at just 2.37% versus the industry average of 11.75%, it also ranks in the bottom 2% with regard to Growth.

The situation is scarcely better when looking at the balance sheet. Long-term liabilities of $6.98 billion outpace short-term assets of $5.75 billion, and the company’s debt-to-equity (D/E) ratio stands at a high 1.05.

At the same time, management has been revising guidance downward since February — and seeing as how Westlake’s capital spending is being trimmed by 10%, it would seem as if a quick turnaround is unlikely.

WLK has lost 24.29% in value in the last 30 days, but is currently experiencing a short-term pull upward that could provide an attractive entry price for a short position.

Sweetgreen (SG)

Our second entry today is health-food-oriented restaurant chain Sweetgreen, which also ranks in the bottom 1% of the stocks that we track. SG is also the lowest-rated stock in the Restaurant industry, which has an Industry Rating of F.

Once again, we have a business on a losing streak — SG has underperformed analyst estimates for 10 quarters straight. In the last report, management noted that only a third of locations are operating at or above standard — to boot, same-restaurant sales declined by 7.6% while foot traffic fell by 10% over the course of a single quarter.

In the last year, SG’s margins have slipped from -13.3% to -16.5% — while the company’s debt to equity (D/E) ratio stands at a high 1.01. In terms of Financials, Sweetgreen is in the bottom 7% of the equities that we track.

The company’s revenues are forecast to grow at 12.8% a year — less than half of the market average. This places it in the bottom 17% in terms of the Growth Component Grade rating. And since there’s no clear path toward profitability, Sweetgreen also ranks in the bottom 3% for Value.

To further sweeten the pot, just like in the case of our previous entry, SG has seen a temporary relief bounce, surging by 10.13% in the last week. However, with no real path to recovery, it’s only a matter of time before the previous downtrend resumes.

Interested In More Great Stock Picks?

The 2 stocks highlighted above are just a fraction of what you get from our proven Stocks to Short strategy. 

That’s because each day our system recalibrates — and Zen Strategies members get access to the top 7 income stocks based on 115 different parameters that point to outperformance. 

See all Top 7 Stocks to Short here > 

However, maybe you’re not a fan of short-selling. Perhaps you would like to see all 11 of our market beating strategies including Growth, Value, Momentum and our coveted AI Factor model. 

Each featuring the top 7 stocks.

Each featuring tremendous performance.

We spell it all out in this timely presentation below that lives up to its name:

77 Best Stocks Now! > 

What to Do Next?

• 77 Best Stocks NOW! >
• See All “A” Rated Stocks with +32.52% Average Annual Return >
• 2 New Stocks to Buy from Steve Reitmeister >

Want to get in touch? Email us at news@wallstreetzen.com.