REITs and Financial Stocks Are “Most Dangerous” for December

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. Discover 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.

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