Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model. TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.
While plenty of high-yield opportunities exist, investors must always consider the safety of their dividend and the total return potential of their investment. It is not uncommon for a struggling company to suspend high-yielding dividends and subsequently result in precipitous share price declines.
TheStreet Ratings' stock rating model views dividends favorably, but not so much that other factors are disregarded. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e. how much one is willing to risk in order to earn profits?; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to its stock's performance.
These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. As always, stock ratings should not be treated as gospel — rather, use them as a starting point for your own research.
The following pages contain our analysis of 3 stocks with substantial yields, that ultimately, we have rated "Sell."Apollo Global Management (NYSE: APO) shares currently have a dividend yield of 19.40%. Apollo Global Management, LLC is a publicly owned investment manager. The firm primarily provides its services to pension and endowment funds, institutional investors, individual investors, pooled investment vehicles, and corporations. The company has a P/E ratio of 10.52. Currently there are 5 analysts that rate Apollo Global Management a buy, no analysts rate it a sell, and 3 rate it a hold. The average volume for Apollo Global Management has been 726,800 shares per day over the past 30 days. Apollo Global Management has a market cap of $2.9 billion and is part of the financial services industry. Shares are up 27.7% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Apollo Global Management as a sell. Among the areas we feel are negative, one of the most important has been weak operating cash flow. Highlights from the ratings report include:
- Net operating cash flow has significantly decreased to -$194.88 million or 316.52% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, APOLLO GLOBAL MANAGEMENT LLC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- 42.80% is the gross profit margin for APOLLO GLOBAL MANAGEMENT LLC which we consider to be strong. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 14.79% trails the industry average.
- This stock has increased by 53.22% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the future course of this stock, we feel that the risks involved in investing in APO do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.
- You can view the full Apollo Global Management Ratings Report.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ENCANA CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $717.00 million or 35.40% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The gross profit margin for ENCANA CORP is currently lower than what is desirable, coming in at 31.00%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, ECA's net profit margin of -4.98% significantly underperformed when compared to the industry average.
- ECA has underperformed the S&P 500 Index, declining 9.33% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- The debt-to-equity ratio of 1.46 is relatively high when compared with the industry average, suggesting a need for better debt level management. Regardless of the company's weak debt-to-equity ratio, ECA has managed to keep a strong quick ratio of 1.90, which demonstrates the ability to cover short-term cash needs.
- You can view the full Encana Ratings Report.
- Currently the debt-to-equity ratio of 1.77 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with the unfavorable debt-to-equity ratio, RNF maintains a poor quick ratio of 0.92, which illustrates the inability to avoid short-term cash problems.
- The gross profit margin for RENTECH NITROGEN PARTNERS LP is currently lower than what is desirable, coming in at 33.50%. It has decreased from the same quarter the previous year. Despite the weak results of the gross profit margin, the net profit margin of 18.99% has significantly outperformed against the industry average.
- RENTECH NITROGEN PARTNERS LP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, RENTECH NITROGEN PARTNERS LP increased its bottom line by earning $2.78 versus $0.36 in the prior year. For the next year, the market is expecting a contraction of 3.2% in earnings ($2.69 versus $2.78).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Chemicals industry. The net income increased by 422.6% when compared to the same quarter one year prior, rising from $3.36 million to $17.56 million.
- Net operating cash flow has improved to $17.34 million from having none in the same quarter last year. Since the company had no net operating cash flow for the prior period, we cannot calculate a percent change in order to compare its growth rate with that of its industry average.
- You can view the full Rentech Nitrogen Partners Ratings Report.
- Our dividend calendar.