Published on 19 Jul 2022 on Zacks via Yahoo Finance

Cast Aside These 3 Toxic Stocks to Improve Portfolio Health

Investors with the ability to differentiate between overhyped and pricey toxic stocks and the correctly priced ones emerge winners at the end. However, precise identification of these two types of stocks is not simple as these are entangled in the market place in a very complex way. Investors who can accurately spot toxic stocks and get rid of them at the right time are set to gain.

MercadoLibre, Inc. MELI, Vonage Holdings Corp VG and Las Vegas Sands Corp LVS are a few toxic stocks that you should get rid of to avoid portfolio bleeding.Most of the times, the overpriced toxic stocks are susceptible to external shocks and are loaded with a hefty amount of debt. Moreover, the price of toxic stocks is unrealistically high. The high price of toxic stocks is only short-lived as the intrinsic value of the toxic stocks falls short of the current bloated price.The irrationally high price of toxic stocks can be attributed to either an irrational exuberance associated with them or some fundamental drawbacks associated with the stock. Owning such stocks for an inordinate period of time is harmful to investors and may lead to huge erosion of wealth.On the other side, investors may benefit from the accurate identification of toxic stocks with the help of an investing strategy called short selling. This strategy allows them to sell a stock first and then buy it when the price falls.While short selling excels in bear markets, it typically loses money in bull markets.So, figuring out toxic stocks and discarding them at the right time is the key to protect your portfolio from big losses. Profits can be made by short selling them.

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