3 Stocks on My Short List

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

As investors, we often become fixated on looking for the good in companies. We try to find the next growth stock, a great value, or just a story we can believe in. But it can be just as profitable to look for companies that are overvalued so we can sell shares we may own, or short the stocks if they're way too hot.

I'm pointing to three stocks that I think are grossly overvalued and would be great candidates. I'm backing up these picks with CAPScalls on my Motley Fool CAPS page to make these picks transparent and so I can track my results.

Groupon (Nasdaq: GRPN  )
Groupon's stock is trading at new lows, but I think this stock has much further to fall. As of last Friday, the company was still valued at more than $10 billion, and I'm having a hard time figuring out why.

After the stock came public, I pointed out that not only is Groupon trying to build a business on loss leaders, but members of its management team have also made substantial sales of their own stakes in the company. That's not exactly the kind of company you want to be invested in for the long term.

But the concern lately has come from a sense that Groupon knows it has competitors breathing down its neck and is doing everything it can to keep them at bay. LivingSocial, backed by (Nasdaq: AMZN  ) , has built a large presence in the space, and a slew of other companies is coming in as well. But handing out free money to try Groupon Now! and the addition of Grouponicus shows that Groupon is trying to get into anything it can, no matter the cost.

LDK Solar (NYSE: LDK  )
There is a lot of uncertainty in the solar market, but I am very confident that the industry is headed for consolidation and more bankruptcies before the industry is set for consistent growth. Some companies will be bought out, but others are headed toward closing up shop.

LDK Solar is in the latter category, because the company doesn't offer anything to a potential acquirer that would be worth taking on the company's debt. LDK was built as a supplier in the solar industry and tried to vertically integrate into making modules, but when the market turned south, buyers spent money on better-known products from Trina Solar (NYSE: TSL  ) and Yingli Green Energy (NYSE: YGE  ) . That left LDK to focus on supplying cells, wafers, and polysilicon to other manufacturers, essentially fighting for scraps.

Being a supplier would be fine if the industry was growing, but there is far too much polysilicon on the market. In addition, module manufacturers are increasingly vertically integrating their businesses, forcing suppliers out. That combination has sent the price of polysilicon to new depths and is putting LDK in a tough spot.

To top it off, LDK is sitting on $2.35 billion of short-term debt, $1.26 billion in long-term debt, and reported big losses for the second and third quarters, and it's building more polysilicon supply. Talk about making all the wrong moves. That makes LDK Solar a top short candidate for me right now.

Research In Motion (Nasdaq: RIMM  )
There's really no coming back from where Research In Motion is right now. After taking over the smartphone market with a product so addictive consumers called it the CrackBerry, the company has fallen behind goliaths Apple (Nasdaq: AAPL  ) and Google in the smartphone war. Unless these two innovative companies take steps backward with their operating systems, RIM is just too far behind to catch up.

Even with the stock trading near 52-week lows, I think there's further to fall. Sales have tumbled over the past year despite the fact that smartphones are being sold in larger and larger numbers. And with Apple in particular adding features to allow enterprise customers to get the iPhone, why would business customers take a step backward with RIM's products?

Research In Motion Revenues Chart

Research In Motion Revenues Chart by YCharts

RIM does have a debt-free balance sheet, but margins and sales are falling fast sequentially in recent quarters, so the company is going to have to turn around a sinking ship quickly.

Before long, I think RIM will be forced to look for a buyer or begin squeezing as much cash as it can from a dying business. Either way. I think this is a perfect short candidate, maybe with a long trade in Apple.

Tracking my picks
Do you agree with these short calls? Tell me what you think about them in our comments section below.

And you can always check out this and my other CAPScalls at my CAPS page. Be sure to start your own CAPS page to see whether you can beat the market.

Fool contributor Travis Hoium has no position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Google and Apple. Motley Fool newsletter services have recommended buying shares of, Apple, and Google, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1656406, ~/Articles/ArticleHandler.aspx, 10/27/2016 1:11:23 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,207.27 7.94 0.04%
S&P 500 2,138.21 -1.22 -0.06%
NASD 5,230.80 -19.46 -0.37%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/27/2016 12:56 PM
AAPL $115.00 Down -0.59 -0.51%
Apple CAPS Rating: ****
AMZN $822.87 Up +0.28 +0.03% CAPS Rating: ****
BBRY $7.19 Down -0.07 -0.96%
BlackBerry CAPS Rating: *
GRPN $4.22 Down -1.04 -19.77%
Groupon CAPS Rating: *
LDKYQ $0.02 Up +0.00 +10.25%
LDK Solar Co., Ltd… CAPS Rating: *
TSL $10.34 Down -0.02 -0.19%
Trina Solar CAPS Rating: **
YGE $3.86 Down -0.07 -1.86%
Yingli Green Energ… CAPS Rating: *